Microfinance in its myriad forms is continuing to gain traction both as a social development tool and as a business opportunity in India.
Last week, New Delhi played host to India’s annual CARE Microfinance Conference, organized this year by CARE and Access Development Services. Microfinance Institutions (MFIs) of all stripes were represented, ranging from large-scale NBFCs (non banking financial companies) to small community development NGOs and financial services technology start-ups. Entrepreneurs cut from varying layers of social and commercial cloth traded ideas with bankers, investors and consultants for two days at what Vikram Akula, CEO of SKS Microfinance, called the “seminal event” for microfinance in South Asia.
One conference veteran joked with me that there were a lot more suits in attendance this year than last, but there were also a lot more people in general; 600 paying attendees as opposed to only a couple of hundred last year.
The (double) bottom line is that despite the international subprime scare, the microfinance industry is booming in India, with more capital, of more types, available than ever before to entrepreneurs building businesses that tackle financial inclusion at the base of the pyramid.
And while the current Reserve Bank of India regulations forbidding the collection of savings from clients have limited the ability of commercial MFIs to offer one of the most needed products, thrift, there continues to be interesting innovation around insurance, asset-backed finance and livelihood training for MFI clients.
Despite my lingering fear (shared by many investors in this space) that there is too much capital in this market chasing too few deals, I met a lot of interesting entrepreneurs here who increasingly understand and are ready to receive equity and the responsibilities that come with it.
I spoke with managers from more than a dozen MFIs at the conference and I think there are a greater number of compelling microfinance and microfinance-related organizations in India worthy of a serious look from equity investors than ever in the past. There are also a handful of NGOs (some of whom are transforming into, or have part of their organizations housed in, an NBFC) that have built up a unique body of social development activities, from teaching clients more productive livelihoods or farming techniques to creating fair trade market linkages between craftsmen and their end buyers.
Vijay Mahajan, chairman of BASIX, likened these pioneer, non-profit NGO MFIs to the research and development labs of firms, pointing out that their non-profit status, in fact, allows them greater flexibility to experiment with new products or social development activities without being preoccupied by a myopic focus on portfolio growth, operational efficiency, and the profitability of their core loan product.
I couldn’t agree more—I met a number of these socially-rooted but increasingly professionally-run organizations whom I am warming up to as an equity investor, because they seem to be doing some of the really innovative stuff that ironically, in the long run, can be more valuable to a client than pure stand-alone credit. Eventually, clients will be willing to pay for these services—there will be markets for them—be they education products, agricultural methods, or supply aggregation and distribution related services. Cutting edge Indian MFIs, many of whom are run by at least partially socially motivated promoters, may be the innovators in these markets as well as the gateways for outside investors and companies looking to access them.
The collection of people who are proving the microfinance story in India happen to be some of the most diverse and interesting people I have ever met. They have made the social venture space in this country a dynamic and fascinating place to be, and their hard work, achievements and enthusiasm left many conference participants, including this one, optimistic about this industry’s future.
Mark David Straub is an analyst at Lok Capital in New Delhi. Comments are welcome at email@example.com