“Microfinance will see more Mergers and Acquisitions”-Eric Savage

Microfinance Focus, June 23, 2010: In an exclusive interview with Microfinance Focus, President of  Unitus Capital, Eric Savage suggested that the microfinance industry will be seeing more of consolidations in the future. “As the companies will grow older I think more people will be looking for strategic opportunities and we will slowly see more mergers and acquisition in the market” he said.

The phenomenal growth of microfinance institutions is one the major reasons he sighted for low levels of consolidations in the sector. Mr. Eric said, “It is not worth the effort for a company to merge with some other when you are doubling your size every year”. Moreover, he felt that there are lack of interested sellers as compared to interested buyers. Most of the microfinance companies have very strong founders who want to continue running their business and are reluctant of handling over the management to others.

Talking of the latest debt funding instruments that MFIs are adopting, he said, “Non-Convertible Debentures (NCDs) are one way in which MFIs can diversify the lender base and we did one such transaction few months ago for Grameen Koota. NBFCs receiving loans from foreign lenders are very restricted so doing a listed NCDs is a way for foreign investors to invest in microfinance sector in a relatively bigger way.”

On the recently proposed RBI guidelines for securitization, he expressed hope that microfinance organizations will be allowed to do portfolio sales as they have been doing and felt that RBI has not done it with an intention of cutting back MFIs from doing off balance sheet financing. Securitization is specifically designed to move debt off balance sheet which has a positive impact on their ROE for MFIs.

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