Future Fund Raising Instruments for Microfinance

Microfinance Focus, June 23, 2010: Driven by their stupendous growth, microfinance organizations have started exploring a plethora of financing instruments to secure substantial funds and expand their lending base. Non-convertible debentures, syndication, securitization and bond issues are some of the financing structures that have gained popularity and are likely to be employed for future fundraising.

Given the profound interest, the sector is bound to attract a range of investors, both institutional and private. The investment deals likely to follow will thus vary according to the stakeholders involved. Moreover, these financial structures are also accompanied with regulatory challenges which may not always support the interest of the MFIs and their investors.

Comprehending these challenges, MCCM conducted a panel discussion on the future structures and the future players, where experts from investment companies discussed the financial advances the microfinance industry is going to make in the future. Jean-Pierre Klumpp, CEO, BlueOrchard Finance S.A. said, “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 or not.”

Kaushik Modak, of Rabobank, “MF is at stage where a lot of NBFCs were in the 90s. I don’t think microfinance ticks all the right boxes, I don’t think it is understood by the debt market players. When we are trying to develop debt market finance structures, the first question is about fundamental rating of credit by MFIs .Fund managers need a standardization and need to understand the matrix”. “Lot of positives are actually concerns, 100% growth is not what a debt market player wants to see,  he is seeing returns on his investments. Debt market needs to educate investors. Pure commercial capital market funding is still to come. Over positiveness is creating a concern for the market” he added. 

Vikram Gopalkrishnan, Citi Private Bank, “There is a powerful connect between families investing and MFIs. There is a lot of motivation behind and it is not just a question of valuation. They are not only profit oriented.”

Ajit Jain, Global Social Investment Funds, said, “Investor are of 3 categories, philanthropic, investors who look getting back what they have invested and those who look for return. Globally it has evolved and we are not far from seeing individual investors investing. Financial institution will act as intermediaries to bring investments from us. Foreign currency exposure for countrie like Pakistan and Uganada where yield curve doesn’t go beyond 1 year, is a lot of problem. But we can learn from international markets.”

Giving an MFI’s perspective, Jaydeep Chakorborty of Arohan Financial Sevices, said, “MFIs do want to get involved in the shaping of debt structures in order to diversify their funding. “We are ready to pay a premium to diversify our funding. But we need a lot of hand holding. We need people who understand that we are not very prepared.”    

Reflecting on the availability of debt structures for loan products like agriculture, Mr. Kaushik said “We do a lot of farmer financing globally. In India the financial structure to finance a retail customer is not available to us. Access to our global treasury is bound under guidelines. We have successful programmes in other countries but we are unable to do it here. The products is there but we cannot translate it India”.

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