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  • Microfinance Focus 1:14 pm on June 24, 2010 Permalink | Reply
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    Key Takeaways from MCCM 

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    Monica Brand, Robert Annibale, and Royston Braganza will sum up the main points that have been discussed in the conference over the past 1 and half days.

    Monica: I believe that microfinance is in some senses is constrained by certain factors. As equity investors we invest in people, and we look for social passion and the passion to succeed. There is a lot more to do here in India, and I come away with a measured optimism about this perfect storm of successful entrepreneurs, professional management team and dynamic growth, but it has to move beyond good planning model to capitalize on the assets of the industry.

    Royston: For me the key concerns are about how we can fund this growth and achieve scalability and sustianability.Essentially, what are we doing as an industry to make sure the impact does not hurt the sector. There will be significant issues in the very near term. How do we ensure that the industry has enough capital to meet the immediate needs of growth? There are also implications of from the political climate and changes that result. So there is immediate cause for us to come together and discuss the challenges that we need to overcome in the near future. We need to find a mechanism that can help us to make a definite next step. Its not all about tier 1 or 2 MFIs, but it’s also about getting the lower tier MFIs to cater to the market.

    Robert: We’ve talked about risk, something that is importantly conveyed by analysts very closely. This industry comprises of a wide range of institutions with various missions, and not all are going to become huge. But they have a common need, which is for capital to spur growth. Specialized funds have been very important catalysts. I am generally very optimistic with what we’ve discussed about risks, valuations, consolidations over the time of this conference.

     
  • Microfinance Focus 12:57 pm on June 24, 2010 Permalink | Reply
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    Day 2 Closing Conversation: Examining the Deal Pipeline 

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    Vineet Rai: Is there potential for more SKS to emerge from the current pool of MFIs?

    Shubhankar: The key is finding innovations. Agricultural loans don’t gel very well, so we have to figure out the methodology for that. We need to be much more broad-minded about how we define microfinance, the target segments we are talking about. We will probably have a couple of SKS coming up, and there is more than enough space for them.

    Richard: There is a lot of growth, but I don’t think that growth will go on indefinitely.I would also question the definition of ‘another SKS’. If in the sense of IPO, yes we will probably see more MFIs taking up IPOs. But I don’t see replications of SKS high-growth in the near future, companies that can scale in the same short time that SKS did.

    Consolidation is a route to opening this space for more high-growth MFIs to emerge. One of the benefits of MFIs is that they are very similar in terms of structure. The operations are the same. So I will not be surprised with the level of entrepreneurs, creativity etc that will create large institutions int he next 5 years.

    Shubhankar: I would consider SKS to mean in terms of size and rapid growth. The way rapid growth has happened in MFIs, shows that certain economies of scale exist. There are however serious issue of concerns. These behemoths will come, but will appear more slowly. So we won’t have another SKS 2, 3 years down the line.

    Bejul: I don’t think the market can support it. For this to happen, equity capital will need to be available in large quantities. It depends on how receptive the market is, and how it will pave the way for future MFIs. I would advise refraining from commoditization. Investors don’t want a massive market with no profitability.

     
  • Microfinance Focus 12:49 pm on June 24, 2010 Permalink | Reply
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    Day 2 Closing Conversation: Examining the Deal Pipeline 

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    to Bejul: There are 233 MFIs and not all will be sustainable. The challenge is that we don’t all know how to do microfinance. So is there any opportunity for consolidation?

    Bejul: Conventional economics points out that a fragmented industry will eventually to consolidation, but I have not seen that in any sector in India. We have highly fragmented industries. One of the reasons is that Indian entrepreneurs are unique because they may be short on capital, but they will find a way to continue.

    Putting companies together is not an easy thing to do. Few management teams in this sector will have the ability to put together differences that have different cultures etc. I wouldn’t be excited to back something like that for those concerns alone.

    Vineet Rai: Value comes from balance sheet mergers than physical merger, and maybe we can mitigate the negative consequences that come with mergers.

    Bejul: Collectivism is critical. That is the key concern in investment. handing money out is easy, but getting it back is difficult.

    Geeta: Many MFIs are still in a high growth rate and there is no need yet to consolidate in the next few years.

    Vineet Rai: What creates revenue for entrepreneurs?

    Social intent and ability to succeed in a business environment. It is difficult to say which is more important, but speaking from a foundations’ perspective, social impact is not good enough if it does not reap profits. Also, the aspiration to diversify and know your customers. It’s going beyond micorfinance to provide services they really need.

     
  • Microfinance Focus 12:41 pm on June 24, 2010 Permalink | Reply
    Tags: , Richard Weingarter, Shubhankar   

    Day 2 Closing Conversation: Examining the Deal Pipeline 

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    Shubhankar: I don’t see it is imperative being good or that there is any conflict between being good and greedy. It all depends on the promoter. At Arohan we always try to be good and we have been recognized by clients. Customer satisfaction is what is most important. It is about how flexible we are as institution and how fair we are to our clients. Benchmarks of the industry has changed, the level of growth has grown exponentially.

    Richard: we try not to choose. people are complex and when they enter microfinanne they have double bottomline motive but the way they do business may differ. We choose people who are both commercially and socially focused We need asset and developmental impact as well. That is very difficult to manage and measure. Our view is that people need money, and it is not our job to tell them what to use the money for. We want to be squarely in the middle of sustainable institutions with appropriate financial institutions. We will have both in equal proportions.

    Vineet to Richard: What is a fair return?

    Richard: I know how to maximise returns as a banker. you have to have a market leader etc. I will not ask them to show me what’s different. it doesn’t answer my question about whether people are getting access to financial services. I start in a different place from Bejul Somaia in that sense. The issues around returns are focused on what the returns for my social investors who are not looking to maximize returns, but who just want to witness a the business becoming sustainable and successful. w e are focused on generating employment and poverty alleviation which are high on our social mandate.

     
  • Microfinance Focus 12:31 pm on June 24, 2010 Permalink | Reply
    Tags: , Bejul Somaia, Geeta Goel, Lightspeed, , MSDF,   

    Day 2 Closing Conversation: Examining the Deal Pipeline 

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    Do you think there is still opportunity for small MFIs to get investments?

    Bejul Somaia of Lightspeed Advisory Services: We are a mainstream investor so our main role is to identify business that can crack into the top tier. We still believe there is opportunity to invest in small MFIs that have the potential. The main question for us is what will take for that to happen? It is about differentiation in 4 areas:
    1. customer & value proposition.
    2. are they doing something unique on the credit side? quality of the book.
    3. unique of geographical focus?
    4. systems and processes and tech adopted that help them to improve their RoA?

    But the questions I ask myself when I interview MFIs coming to me for investment:

    1. Convince me that you are really doing something different for the customer. Show what you’re doing different that is impacting your customers. I don’t feel that there is enough conversation on that.
    2. for a younger microfinance to break into top tier will take a lot of capital.So the second question is, do they have the force of will to raise and manage capital?

    Vineet to Geeta Goel of Michael and Susan Dell Foundation: What has been your experience moving into microfinance, and doing what you have done?

    Geeta: our role is to build the pipeline for investors in high-risk areas.We want sustainable scalable solutions for the rural areas. in the first 2 years we did see that most markets were receptive to rural models of Grameen. Earlier risks were proven wrong. we thought portfolio will take 6-7 years to mature, but just give the much higher penetration, and what we capitalized was a very easy market and the high growth has exposed certain risks. We think since the market has gone to mainstream domain, social and commercial interest are not poles apart. The entrepreneur has to know the client base, and we don’t see commercial focus as a risk. Our concern is whether there will be social returns ont he money that we invest in an MFI.

     
  • Microfinance Focus 12:19 pm on June 24, 2010 Permalink | Reply
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    Day 2 Closing Conversation: Examining the Deal Pipeline 

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    The closing conversation of the conference examines the deal pipelines, regarding the parties involved in investing, participating and constructing the future of microfinance. It is moderated by Vineet Rai, the CEO of Aavishkaar. Vineet clarified that the pipeline is a justification of investment in the microfinance industry. Manny people want in to this pipelines. There is a lot of value in this pipeline, depending on what stakeholder or perspective that you come from. This panel will discuss the opportunities that will be arising in this industry.

    He posed a question to Shabhankar Sengupta of Arohan, how did he structure his MFI to bring investors in? Getting an investor, he replied, was easy because there were very few new-generation MFIs. There was also very few investment funds that were looking to put their money somewhere, and it was easy because there wan’t much choice either way.

    Vineet Rai to Richard Weingarten or Norwegian Microfinance Initiative Frontier Fund.: How will somebody build a pipeline, and do you actually have a role in it? or is it just an opportunity where you pick the best you can. They go through a thorough process. How does one build a pipeline in a market that’s complex and growing like in India, and also in markets elsewhere?

    233 MFIs are surveyed Bharat Microfinance Report, but people can only name 10. Few MFIs are very well-known. Client base is very large, but still very large population is unpenetrated. Where are these MFIs operating? Most of them are only in 2 geographies in India. There are many other areas that need to be penetrated. We are not look to invest in larger MFIs, but we are targeting tier 2 and 3 MFIs that have good ability to penetrate new geographies an markets and have good management teams and experience. Value-creation is a major plus point for us. Another good place to look for pipelines is in the type of companies that have good commercial practices established, and would like to replicated this in a new area. We look for places that are difficult to build our pipeline, such as Pakistan and Afghanistan. The picture differs all over India and we cannot simply attempt to replicate one model in another South Asian country, As an investor we still see a lot of opportunities and try to manage our expectations. Our goal is not to become the next SKS, but to develop the social component, get a fair rate of returns and not measure everything against figures.

     
  • Microfinance Focus 11:33 am on June 24, 2010 Permalink | Reply
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    Panel 5 – Exploring the Risks Q&A 

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    Question: Nobody is talking about what’s the risk appetite. What is the risk appetite that investors are comfortable with?

    Vishal: 2.5-3% is a comfortable range, and MFIs are 2 or 3 times of that, while some are below that also. Generally as long as you are able to meet that average is good enough.

     
  • Microfinance Focus 11:28 am on June 24, 2010 Permalink | Reply
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    Panel 5 – Exploring the Risks Q&A 

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    Questions from the ground: What will happen to all of us in 10, 20 years? What are the career prospects in this industry?

    Sanjay Sinha: I believe that banks will eventually figure out how tot use the correspondents model, and all of you will eventually become business correspondents.

    Kshama: The impact will be upon the children of the microfinance clients, who are able to get more and better education, which is a tool that will can help them to break out of their situation.

    Erik: It is impossible to predict for 20 years, in whatever country, but even more so in India where the industry is still very young. Premature actions actually stunt its growth and make it impossible to grow its portfolio. I would advise more normal pricing and take your time to diversify so that you can give your clients what they really need.

    Rajender: I think it is going to be what happened to NBFCs 10-15 years back. At some stage, the banks are going to step in. Going forward, quite a few MFIs may become BC, but the bigger ones can serve their industry well with ideal models, and go ahead to compete with banks in their industry.

    Vishal: It is more of the strategy and the intention of the company is important. Figuring out the next level of steps to take does not cost much, and having MFIs to adopt this is key to future progress.

     
  • Microfinance Focus 11:20 am on June 24, 2010 Permalink | Reply
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    Panel 5 – Exploring the Risks Opening Statements 

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    Erik Guerts is a senior management officer in Triple Jump, an Amsterdam-based investment company. He will highlight his experiences of risks in other markets, and compare it with those of the microfinance sector.

    It makes a difference viewing risks from the perspective of debts or equities. Growth is the main value drive for microfinance, from an equity perspective, but its is a big operational risk if you are making a loan. In his years on the job, he has been able to see risk happen in practice.

    One lesson is that you cannot see risk as isolated from the rest of the business that you are doing. This market is compelled to growth because of high multiples and the needs of the clients, and thus MFIs may result to single-product strategy.

    Risk is not always something bad, but can also be an opportunity as it helps you to identify your risk market. Microeconimically, microfinance in India has great potential. But from a microfinance perspective, there are various risks. There is a very strict legislation of the industry regarding funding, such as being unable to take savings if you are an NBFC. This can in itself be perceived as a risk by investors. Restrictions on the amount of foreign share in an Indian company is another risk.

    If the whole microfinance industry were to collapse, nobody would care, because it is such a minor part of the Indian economy. So market risk is a huge problem here, because investors don’t have figures for the size of the market. The lack of credit bureaus place Indian mcirofinance industry at a higher risk. Lack of product development also puts off investors, even more so than operational risks. Reputational risks are a major point for social investors who need to know the motives of the leader of a microfinance company. If there is no social motivation, there is a risk for the company.

    We as social investors, though foreign, still have a role to play in the mcirofinance industry. In the end, we are confident that we can play a role in the Indian microfinance industry, and succeed. A final important point is that we have to use our own judgments when looking at risks.

     
  • Microfinance Focus 11:07 am on June 24, 2010 Permalink | Reply
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    Panel 5 – Exploring the Risks Opening Statements 

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    Vishal Mehta is the co-founder and MD of Lok Capital. He gave a perspective of what investors look at and the risks that are of primary concern.

    2 categories of regulatory risks: political and framework. Framework that is available to the industry for achieving financial inclusion. The lack of innovation is also a big risk to investors. The industry has gotten too comfortable with its products and procedures. What will help a sustainable relationship with client is HR and IT, and there needs to be more focus on these by the industry.

    Credit risks is another theme. There is a systematic increase in certain geographies of credit risk, caused by default, that was encouraged by aggressive lending. Thoughtless strategies like these change the clients’ behaviour completely, and changes the face of microfinance.

    We still have the opportunity to create a very different business model that can be scalable, replicated and commercially-viable. We need to make it more customer and employee-centric, which are 2 ingredients that are crucial to the success of an MFI. We also need to learn how to distribute wealth, as the current business model very obviously skews profits towards the top.

     
  • Microfinance Focus 10:57 am on June 24, 2010 Permalink | Reply
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    Panel 5 – Exploring the Risks Opening Statements 

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    Sanjay Sinha, MD of M-CRIL, has, prior to this conference, been expressing some of the concerns regarding the risks in this sector. He claims to be a professional whistle-blower, and enjoys promoting good practice. It’s not all about mathematical models in ratings, but it’s based on research on the community, with the MFI, etc. If we forget the problems on the ground, too many clever things start to happen, and it could replicate the tech boom of the late ’90s.

    The microfinance industry is over-heating, and this is the first time it’s happening, so many are in denial. The industry has to go through a business cycle before it can be regarded as a mature industry. So the dream scenario for him is a few large MFIs going bust completely so that lessons can be learnt, to understand what are the best practices. There is a significant amount of over-indebtedness arising from multiple lending. Multiple lending leads to a high risk of defaults, even though mathematically there is no problem. Pressured by loan officers, the clients have no choice but to run to their community leaders and hence, bring a mad name to the microfinance industry within the community. We should not be in denial of these emerging problems and face up tot the reality that cracks are appearing.

    We need restructuring

    Some of the larger MFIs have too many branches, and have huge internal control problems developing. Refinancing is increasingly prevalent among MFIs.

    The challenge today is this: The rigid products that we offer today are not suitable for the clients. We need more flexible products and MFIs need to look at that as a value creation model for the future. We need greater innovation.

     
  • Microfinance Focus 10:48 am on June 24, 2010 Permalink | Reply
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    Panel 5 – Exploring the Risks Opening Statements 

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    Rajender Sehgal of HDFC Bank candidly agreed with Kshama that assessing risks is one of the most disliked jobs in the industry. How do banks look at the microfinance sector vis-a-vis the other sectors. Banks can look at it with a business vertical, or like any other vertical, or a stepping stone to another goal.

    In HDFC, it is run as a business vertical with long-term plans, and so they are favoured by more than 100 MFIs who bank with them. They are also the first and only private bank to finance SHGs, a figure that has reached 3,500 crores nationwide. Risk and business work together by building business by mitigating risks to a certain extent. As a sector which is looking to enter microfinance, there are some factors that prevent it from making an easy entrance.

    Dimensioning is also a challenge for banks. Microfinance industry has not gone through cycles or shocks that has caused it to mature, and this affects the confidence in the industry. We have to take such risks into consideration, but it is difficult to do so in an industry where there are few regulations and hardly any support systems. There are also no benchmarks of growth and profitability against which external agencies can measure the investment-worthiness of an MFIs.

    In the last one half years, the image-beating that some MFIs have suffered by the public revolve around the interest rates etc. There are a lot of mutual funds sitting on the verge of non-compliance. We don’t have the kind of body that can talk with the bureaucrats, politicians etc, and help them to understand why MFIs do what they do, or charge interest rates in such a way. It is easy to lend to people who are readily available , but how much of that are going into consumption or generating cash flow?

     
  • Microfinance Focus 10:36 am on June 24, 2010 Permalink | Reply
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    Panel 5 – Exploring the Risks Opening Statements 

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    The opening panel of day 2 is moderated by Kshama Fernandes, the Chief Risk Officer of IFMR Capital.

    She gave a recap of yesterday’s discussion. From a risk officer’s perspective, she revealed the difficulties that they face in their jobs, such as having to justify their jobs when things are going well, which is precisely the situation that they are there to ensure. Risk is an important issue to consider in the industry today.

    Setting the tone for the panel, she clarified the kinds of risks that we are discussing in this panel. In finance, risk is measured as the volatility of returns, from the MFI, investors’ and borrowers’ angles. There are endogenous risks that can be controlled by MFIs, such as operational, and origination risks, and there are exogenous risks that are external and hence more uncontrollable, such as natural disasters, political interference and regulatory changes.

    The way IFMR looks at these risks and manage them. Endogenous risks are managed at an entity level. There are stringent underwriting guidelines to follow, extensive due diligence, and a grading tool for quantitative and qualitative factors. For exogenous risks, they are managed using capital markets approach, of which the three steps employed by IFMR are diversification (portfolio approach), structuring and innovation (R&D focus).

    Monitoring and surveillance is a non-negotiable in asset management for MFIs.

     
  • Microfinance Focus 10:13 am on June 24, 2010 Permalink | Reply
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    Day 2 Opening Discussion Q&A 

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    Q: How do you perceive growth of increasing participation of NCDs by mutual funds houses? Key parameters for growing MFIs?

    Balasubramaniam: Most MFIs think about refinancing, thought not all. It is useful for building up assets. It can also ensure NCDs. Because of the quality of the borrowers, the cost of financing is high, and its ability to raise long-term money at a cheaper rate will not be there. But clearly is the institution is highly-rated, investors will come. But the question is how many MFIs can achieve a long-term high credit rating? That in itself is a challenge.

     
  • Microfinance Focus 10:07 am on June 24, 2010 Permalink | Reply
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    Day 2 Opening Discussion Q&A 

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    Is it possible for mutual fund industry to fund microfinance industry?

    Balasubramaniam: Yes, it is possible. There are securitized and unsecuritized channels (like NCDs). The moment it is securitized we need a pool of assets. Unlike a bank, there is no guarantee of loans in the mutual funds industry. There are certain criteria that an MFI has to meet before we can give out loans to them. We will not lend, for example, to MFIs recording a profit of more than 50 crore.

     
  • Microfinance Focus 10:02 am on June 24, 2010 Permalink | Reply
    Tags: , Birla,   

    Day 2 Opening Discussion 

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    A. Balasubramaniam, the CEO of Birla Sun Life Mutual Fund, opened the second day’s discussion with a foray into how the mutual fund industry can play a role in the microfinance industry.

    From issuer’s perspective, the issuance can have a put option.

    It is an opportunity, and we see a pool of investors coming from rural markets, where the income stream is relatively predictable because they work in a community. Even the government is giving support tio agriculture as their income is rising.

    The industry is still nascent and unless it matures and grows larger it cannot go for mutual fund as seasoned portfolio is not there. Margins are going to shrink or mare players are coming.

    Risks are going to rise. At this point of time MFIs have not gone through that cycle. We look for high quality instruments we need to ensure that liquidity is high of these structures. Liquidity is an important issue. We do face issues while investing in securities.

    Business model of microfinance, the management of running it, the risk management of process and how scalable it is are some things that we also consider. Capital is only for quality investment. Beyond a point, even capital will not be sufficient for the growth of MFIs. Debt fund should be available to scale up.

    Hidden taxes of third party products. Ability to sell third-party product is very attractive for all microfinance organizations. Companies are able to generate 5-10% revenue from these third-party products.

    Credit quality of the assets is important. But frauds of regulatory and political nature are also potential risks.

    We need to start long-term assets in our books, if the microfinance industry is to be presented as a great opportunity for investors.

     
  • Microfinance Focus 1:18 am on June 24, 2010 Permalink | Reply  

    Angles…Panel 

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    MCCM Panel 1

    MCCM Panel 1 (from left to right): Aditya Bhandari, Sandeep Farias, Ravi Kapoor, Avnish Bajaj, James Kaddaras.

    MCCM Panel 2

    MCCM Panel 2 (from left to right): S. Viswanatha Prasad, Alok Mittal, Royston Braganza, Padmaja Reddy, Christian Banno.

    MCCM Panel 4 (from left to right): Vikram Gopalakrishnan, Jaydeep Chakraborty, Jean-Pierre Klumpp, Kaushik Modak, Ajit Jain

    Day 1 Closing Conversation

    Day 1 Closing Conversation (from left to right): Ashish Lakhanpal, Mohit Bhatnagar, Paul Beckett, Monica Brand

     

     
  • Microfinance Focus 6:04 pm on June 23, 2010 Permalink | Reply
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    Day 1 Closing Conversation 

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    Question: Where is the contrarian player in the valuation question?

    Mohit: The secret has to lie in the body of the company, the quality of management, and the staying power of the key people. To be good in our business we need to look at the insides of the company to see if it has the ability to maneuver around crisis and reap in profits in due time.

    Ashish: We have been carried away by the topic of valuations in today’s conference, but there are so many more things that such as corporate governance that matter as well.

     
  • Microfinance Focus 5:55 pm on June 23, 2010 Permalink | Reply
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    Day 1 Closing Conversation 

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    Paul Beckett: where does India fit?

    Monica: India plays prominently because it is a prominent market and there have been experimentations on technology and the likes. But the bubble experienced here is very much like the dot-com bubble of the 90′s, and she doubts that the high PE ratios are truly justifiable.

    Ashish: It’s not just valuations, but also a whole dimension of corporate governance that has so far been neglected.

     
  • Microfinance Focus 5:50 pm on June 23, 2010 Permalink | Reply
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    Day 1 Closing Conversation 

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    Ashish Lakhanpal of Kismet Capital stated that there is only one winner of these conference, which is access to capital. One thing that doesn’t get enough press is that if you do pay attention to the benefits that result, the fundamental access to capital is being democratized. There is also the creation of a platform for credit access. Sometimes journalists sensationalize exploitation, but neglect that the beneficiaries of microfinance have been positively and undeniably impacted by microfinance, and this doesn’t get enough attention.

    It is very rare that the industry goes forward to express honestly what their needs are, and the microfinance industry has done just that.

    Some negatives of the industry are multiple borrowing leading to high default rates, and the proliferation of players in the same market, making it over-saturated. Another concern is that we seem to focus more ons scaling and growth than innovation. These 2 components are important, but innovation is what benefits the clients. It also benefits the institutions as they can come up with solution to tackle the financial problems that they might face.

    Regulatory concerns have also resulted from bad press. It lowers investors’ confidence, thus affecting the whole industry. On the other hand it leads to a review of the regulations that may be currently inadequate.

    Solutions: Private practitioners need to get back to basics and remember who their customers are. The benefits of growth in these companies as they go public will need to be shared more broadly among the shareholders and employees, who need to drive benefit as well. Finally, there are fears that there will be a problem with repayment. We need to follow the lead of players who are a little more forward and build stronger balance sheets and raise equity.

     
  • Microfinance Focus 5:39 pm on June 23, 2010 Permalink | Reply
    Tags: , Mohit Bhatnagar, Sequoia   

    Day 1 Closing Conversation 

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    Mohit Bhatnagar of Sequoia India shared 5 points.

    1. The early and easy days of simple acquisition are gone. The sooner we realize it the better we will be. The current landscape will require processes that will separate the men from the boys

    2. Hardcore analytics and segmentation – one size does not fit all. The base is not homogeneous, and the products have to be sophisticated.

    3. Sheer organizational majority. No longer can we manage an MFI on a single level, but it requires managing the MFI on many levels from micro to management level. Neglecting these would spell irresponsibility.

    4. Regulation is necessary. MFIN is a brilliant idea, and investors look forward to such improving regulations that structure the industry.

    5. The strategic opportunity is the sheer distribution platform of being able to reach millions of people, and we have to be responsible about this. We need to give them the products and services that they deserve.

     
  • Microfinance Focus 5:33 pm on June 23, 2010 Permalink | Reply
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    Day 1 Closing Conversation 

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    Monica Brand from ACCION presents her case from the perspective of a fund manager. She agrees with Paul that the industry needs to be transparent about the full picture, and that they have not yet considered the press as a significant facilitator of the industry’s image. Some of the negative press that has been received does demonstrate the limitations of the model, but only a small part of it. Other than that there are many small MFIs that are innovating to bring the best products to their clients.

     
  • Microfinance Focus 5:30 pm on June 23, 2010 Permalink | Reply
    Tags: , Paul Beckett, WSJ   

    Day 1 Closing Conversation 

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    The concluding panel of the day is moderated by Paul Beckett, South Asia Bureau Chief of Wall Street Journal South Asia.

    From the perspective of the press, some crucial aspects of microfinance as it progresses, microfinance has become an industry that has been populated with people preoccupied with the global financial crisis. As it becomes a mainstream business, it attracts the attention of the mainstream press, and they are going to have to manage all of that. This matters because when things go wrong, investors, politicians and the press will react, leaving the industry in a tough spot. How you can mitigate these risks is to know who you are dealing with, like the top 5 journalists whoa re reporting on the industry. One bad press will mess up your plans. Not many business plans out there have a plan for communicating with the press and managing their public relations.

     
  • Microfinance Focus 5:21 pm on June 23, 2010 Permalink | Reply
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    Panel 4 – Focus on Debt: Future Structures, Future Players Q&A 

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    Question from the ground:
    All these structure are for your regular products, but are there any debt sources or structures that exist to promote or debt-finance other loans that are related to say agriculture?

    Kaushik Modak: We do a lot of farmer financing globally. In India the financial structures to finance a retail customer is not available to me. Access to my global treasury is bound under guidelines. We have successful programmes in other countries but we are unable to do it here. There products are there but we cannot translate it to India.

    Jean-Pierre Klumpp: We should provide such specific loans to cover for the riskier components. But we also need to match the demands from the borrowers’ and investors’ sides.

     
  • Microfinance Focus 5:14 pm on June 23, 2010 Permalink | Reply
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    Panel 4 – Focus on Debt: Future Structures, Future Players Q&A 

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    Question from the ground

    From a practitioner’s point of view, it qppears that equity is not a problem, but debt is a great problem. Only 20-30% banks will take part in microfinance. and even among these, we need to approach them repeatedly to et the funds that we need. Can you suggest other tricks of the trade to get responsible bankers who will listen to the needs of MFIs?

    The differences between having and wanting 2 funds is that you develop an affinity first, as it can bring you a long way to getting the funds that you need.

     
  • Microfinance Focus 5:01 pm on June 23, 2010 Permalink | Reply
    Tags: , Jaydeep Chakraborty,   

    Panel 4 – Focus on Debt: Future Structures, Future Players 

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    Jaydeep Chakraborty of Arohan Financial Services Ltd spoke from the perspective of an MFI. MFIs do want to get involved in the shaping of debt structures. In doing so, they can diversify their funding sources, an important lesson that we have learnt from two years ago. For Arohan, it jolted them to realize that they cannot solely rely on private investor funding, as they were doing.

    One of the challenges that an MFI face is understanding all the transactions, such as NCDs and the various entitites that are involved in these transactions. Having the likes of Unitus Capital and Grameen Capital helps to clarify these processes through their expertise hand-holding. There are a lot of options that have not been approached and we need to start talking to each other about this, and get the dialogue going. We need to start getting the private investors in.

     
  • Microfinance Focus 4:56 pm on June 23, 2010 Permalink | Reply
    Tags: Ajit Jain,   

    Panel 4 – Focus on Debt: Future Structures, Future Players 

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    Ajit Jain introduced Deutsche Bank’s work in microfinance, which involves lending senior debts to MFIS in various parts of the world. Microfinance is a double bottomline industry. It has evolved a lot globally, and we should continue to learn from other industries, and adopt their best practices. While there are many private investors who are willing to invest, we are not yet at the level where whole institutions will fully invest. The industry will evolve to a point where there will be more inclusion.

     
  • Microfinance Focus 4:49 pm on June 23, 2010 Permalink | Reply
    Tags: , , Vikram Gopalakrishnan   

    Panel 4 – Focus on Debt: Future Structures, Future Players 

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    Jean-Pierre Kumpp: No country is immune from global shocks. As an industry we have done a lot better than other industries, but the point if nothat we are better, but whether we are practising financial inclusion.

    Vikram Gopolakrishnan noted that no one at the conference had yet to mention the linking of the microfinance industry with the private sector, a partnership which he feels has great untapped potential. Investors recognize that besides a commercial, there is an emotional motivation. They also have sympathy for people who go through ups and downs, just as their own company probably have been through. So this is a very powerful connection that has thus far been neglected in India.

    There is a lot of width between the returns for investors and the borrowing rates. Unfortunately traditional banks have focused more on equity than on clients. In size, microfinance may not seem spectacular, but there is a lot of room for long-term investments.

    The difference between a corporate and private client is corporate governance. We have to use such best practices methods to show them the risk, and investors will appreciate it.

     
  • Microfinance Focus 4:39 pm on June 23, 2010 Permalink | Reply
    Tags: , ,   

    Panel 4 – Focus on Debt: Future Structures, Future Players 

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    Panel 4 follows up on Panel 3 to assess the impact of various structures, and also explore the possible range of buyers, both institutional and private. Jean-Pierre Klumpp moderates this panel. He questions, as we have also done on the international side, can we bridge the funding needs of the microfinance sector with the capital market?

    Kaushik Modak of Rabo Bank comments microfinance is at a stage where NBFCs were in the 1990′s. The pain that we experience in the debt markets today is very familiar to him. He quoted Ravi of Citi bank saying that microfinance as an industry ticks all the right boxes. However Kaushik disagrees, arguing that microfinance is not understood by debt players. As we try to develop the debt market today, what is the fundamental rating of credit by MFIs, he asks. MFIs today have multiple choices. Besides the banks, other debt-financing options are not standardized. They need a professional agency to carry out this exercise for them, to churn out such crucial data that gives an accurate assessment of the organizations.

    What a debt market player wants to see is not multiplied RoAs, but returns on his money, which can only come about with sustainability. Standardization of the industry, or underwriting MFIs are goals that we should work towards. A long-term business cannot be sustained by RoEs. Pure commercial funding for microfinance is yet to come.

    He concluded by saying that the over-positiveness of the market is creating worry for the debt market. We have all worried about the securitization. He didn’t think that the concerns that the RBIs have raised are not unwarranted, as these are the same questions any other investor would have asked. From an investor point of view, there is very little difference between the microfinance and other commercial industries as an investor has no power to recover his assets. The gap between ratings of other institutions and MFIs is not sustainable. We should look at the standalone ratings of institutions. The industry should be calibrated, otherwise investors will not take kindly to any financial mishaps that may befall the industry.

     
  • Microfinance Focus 4:17 pm on June 23, 2010 Permalink | Reply
    Tags: , , , ,   

    Private Equity: Fishing in Microfinance Water 

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    The soaring microfinance industry has been luring private equity investors with its rapid growth and high returns. Growing at a CAGR (Compound Annual Growth Rate) of 105%in the last five years it has emerged as an investment hotspot for private equity investors. In the last 18 months, close to US$ 200 million in PE was invested in Indian MFIs and millions more are in the offing.

    While the interest in microfinance equity investments is high, the market is still very young and is posed with many vital challenges. In the opening session of MCCM conference, an insightful panel discussion was moderated by Ravi Kapoor, Managing Director, Head Investment Banking, Citi India, on some of the intriguing equity deals that took place in recent months in the microfinance space. Panelist included James Kaddaras, Partner, Developing World Markets, Avinash Bajaj, Managing Director, Matrix Partners India, Sandeep Farias, Founder & Managing Director, Elevar Equity and Aditya Bhandari from Incofin.

    Initiating the discussion, Mr. Ravi Kapoor said “I am quite bullish about the sector, it poses huge opportunity. In the years to come we would see many microfinance organizations building up great value and investor will get benefitted. At the same time I think it is important to keep asking the sustainability questions and we should evaluate both sides of the growth.”

    “There are elements of bubbles in this sector at the operational level, the geographical and product concentration level. Valuations should definitely be lower than what they are today. There is definitely a bullish case as I have 20 millions dollar invested”, Avinash said.

    Aditya Bhandari compared microfinance sector with other commercial sectors that grew rapidly and experienced a blip. The Indian banking sector also grew very rapidly and had a lot of portfolio issues. But they soon realized that the key to sustainability was having good customer relations.

    Focussing on the need of understanding Client’s need, Mr. Sandeep said, “How we are going to crack the market from the point of client is important. We need to refocus back on the customer. Multi product strategy has not achieved much and because of the hyper growth and free cash flow, it is very difficult for microfinance organizations to really shift and become a multi product strategy business. We need to start up all again we need focus team to deliver different products.”

    As to why Indian investors are not entering into the microfinance sector and the reasons that are pulling them back, Mr. Sandeep suggested that for a long time it was a question of not accepting microfinance as a genuine investment opportunity so they have not come in substantially. There are also question around valuations and risks. They think it is the subprime of India.” He added, “Domestic investment has always been a challenge regardless the sector, and in the future as the industry matures we expect more domestic investors to enter. It is basically a valuation question. Valuation being very high, there is lesser interest from the investors.”

    The valuation question reign the panel discussion as panellist kept coming back to it with insightful thoughts. Mr. James of DWM said, “We have to be very careful about the valuation we enter at and the valuation we exit at. I am amazed at the pace of change in MFIs and don’t underestimate MFIs to rise to the level of risk factored valuation”.

    Mr. Avinash said, “The supply of quality MFIs is limited and demand is very high so prices are going up. On the fundamentals I think the risk is not being factored into the valuations. I think as the growth rates will taper off the equity will also taper off and valuations will come down.” He highlighted the fact that all the stakeholders of microfinance are playing a part in raising the valuation. “Entrepreneurs also don’t come with reasonable valuation.” Asking the investor not to compare microfinance with commercial bank, he said, “For settling down the high valuation, let us not compare MF with commercial bank as it is private bank and human network business. Investment should not be based on that logic.”

    Answering a question from the ground about the future of retail investment in the sector, Ravi Kapoor commented, “Retail investors always have an opportunity but it comes later to them. They will participate only once companies go public. That will take some time as the sector is still maturing”.

     
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