The consolidation process by Indian microfinance institutions may begin in less than a year and may become a norm in three years from now, says Aavishkaar CEO Vineet Rai.
“Consolidation would become necessary for MFIs which are large in size while those smaller MFIs work at the grass roots level and hold the key to engage the borrowers. Here, the big MFIs would prefer to take over the district and semi-urban MFIs to get access,” Mr. Rai told Microfinance Focus in an interview on Tuesday.
Citing the You Tube example in IT industry, he suggested that similar trend may occur even among the MFIs. You Tube was a start up that emerged as a successful visual medium on the internet and was soon acquired by IT major Google. Similarly, large and national MFIs would look for acquisition of local or regional MFIs which have proven management skills and access to remote corners of the country, he said.
On the funding front, he is confident that investments would flow in as long as the capacity to absorb them by MFIs does not saturate. “There is a reasonable appetite among the investors, ability of the banks to lend funds, new instruments like non-convertible debentures or securities flowing into the sector which has seen returns in the range of 20 to 30 per cent,” he said and quickly added that the estimated inflow this year would be around Rs. 1,000 crore.
Rai, a graduate of Indian Institute of Forest Management, Bhopal, and ex-CEO of Ahmedabad-based incubation fund Gian.org, ventured into micro venture capital, an area hardly considered by other venture capitalists. When his idea caught up with a group of NRIs — Anantha Nageswaran, an economist with CSFB and Arvind Singh, GM at StanChart in Singapore — many others joined and soon they established Aavishkaar International in Singapore to collect money and invest it in Aavishkaar India Micro Venture Fund. Aavishkaar’s sole condition to provide funds is that the project has to be commercially viable. It has so far raised $35 million, spread over three funds, including Aavishkaar Goodwell Fund.
From its initial funding in 2002 to Chennai-based Servals Automation, a manufacturer of kerosene burner that reduces kerosene consumption by 30% per cent, Aavishkar has so far made 22 investments and 17 of them in rural ventures.