Microfinance Industry will see Consolidation in the Long Run
- Thursday, June 24, 2010, 15:41
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Microfinance Focus, June 24, 2010: Despite exponential growth and expansion, the Indian microfinance industry has not witnessed mergers and acquisitions so far. The market continues to remain highly fragmented. This was one of the issues discussed in a panel at MCCM. Mr. Bejul Somaia of Lightspeed Advisory Services said, “Consolidation doesn’t happen in any sector in India. Indian entrepreneurs are unique in the sense that they can continue even if there is difficulty in raising capital. Not many management teams in this sector would be able to put together different models operating in different culture and geographies”.
Mr. Vineet Rai from Avishkar said that a lot of value and efficiency can come from the mergers of balance sheets and was supported by Mr. Richard Weingarten, Managing Director, Norwegian Microfinance Initiative Frontier Fund who said, “Microfinance has a strong commonality and the basic fundamental structure is very same that will lead to consolidation. We are sure some great institutions will come together within 7 yrs and work for some great innovation.”
“Indian industry is in a high growth phase and has not seen any dip which could push consolidation. Maybe some slump in some area can drive it”, suggested Geeta Goel, Michael & Susan Dell Foundation
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Consolidation is bound to happen in the MFI sector but this time around the consolidation would most likely happen on account of Investors wanting to encash on the good story quicker. Most of the PE investors are investing or looking to invest in regional stories and trying to build up scale which is concentrated in specific areas rather than a diversified story apart from the larger ones which were diversified much earlier than the actual growth began in the industry. Due to this there is always the lurking feeling that these investors would take the advantage of liquidity and money power to such an extent that they would end up becoming the promoters of most MFIs (SKS is a starking example) and then go for consolidation in order to move out. The PEs are also very strongly advocating the need to be regionalized and hence marginalized players to the prospective promoters in the garb of better controls etc., This will in turn end up in a consolidation phase sooner than later as and when additional regulations are put in place. This would be the most easiest way to move out of the industry while encashing along the way. I strongly opine that promoters of startups should first look at controls even before starting disbursement and go for geographical expansion while scaling up with a healthy and diversified portfolio in order to continue in business else they should start looking at being a likely target of a larger MFI sooner than later. Further, this would bring in fly-by-night operators who would start looking at this industry for quicker buck, just like what happened to the NBFCs pre-1998 days. Whichever way the industry goes, these are exciting times nevertheless. This is a comment which does not dis-respect the role of Long term Social Funds active in the country and this comment is made in individual capacity and is not necessarily the views of the Company I represent.