MUMBAI: Private equity funds with a special focus on micro finance institutions have lined up billions of dollars for the sector in India.
For instance, Aavishkaar Goodwell, a micro finance private equity company, is building a $25 million portfolio across India, $2 million of which has already been invested into Share Microfin, a micro finance company with over a million clients. Funds such as Bellwether and Lok Capital have also lined similar plans.
Private equity funds raise capital from financial institutions and banks and lend it to micro finance companies, mostly for equity. For example Deutsche Bank, Netherlands Development Finance Company (FMO) and International Finance Corporation (IFC) of the World Bank group have provided funds for Aavishkaar Goodwell. IFC and FMO have also invested in the $12 million Lok Capital fund.
Some other private equity funds have lined up much bigger sums. "For India we are not talking millions but billions," says Vikram Akula, founder of the new age micro finance company SKS.
On March 29 this year, global venture fund Sequoia, which has made high-profile investments in companies like Yahoo, Google and You Tube, led a $11.5 million investment in SKS.
But why this craze for India?
"A majority of the billions of private equity funds are going to make their way to India because of the large number of people here," explains Akula.
India is the second most populous country behind China with a large number of un-financed poor people, the main clients for micro-finance companies. Unlike China, where state sponsored schemes and co-operatives cover most of the county, India is a easier place to do micro-finance business because of the opportunity and growth. Latin America is also a vast market for micro finance but it is far more sophisticated.