TC-I Fundwatch: Madura Micro Finance to get $4.52 million from Unitus

Madura Micro Finance has received an investment by Unitus Equity Fund to ramp up their offerings to women self help groups (SHGs) in rural India.

Madura Micro Finance will use UEF’s funding to increase its management bandwidth and institutional capacity as well as continue to expand its customer base, which is comprised primarily of women.  The firm’s central financing product is a group loan to self help groups (SHGs) which are formed and trained through its partner organization, Microcredit Foundation of India. These SHGs undergo training in good financial practice and business skills before being considered eligible for MMFLs loans. Madura does not post to the MIX database. It reported USD 35 million in disbursements in 2007, and an SHG member base of 500,000.


To Profit or Not to Profit

According to Mr Chu, “to roll back poverty rather than to merely alleviate it”, any solution needs to be able to reach massive numbers, deliver permanent results that can help many generations, provide continuous effort so it gets better and better at what it does, and provide continuous efficiency so it also becomes cheaper and cheaper. Mr Chu believes the only state that can offer all these four requirements is business.

From a review of a debate between the father of microfinance Mohammad Yunus and Michael Chu, former President and CEO of ACCION. Given that today’s Blog Action Day is focused on poverty, it seemed fitting to highlight this issue. 

Can we truly reach microfinance’s potential without the efficiency and scalability gains that business and for-profit models provide? Is profiting off of the poor unethical, and as Yunus argues, should we only be looking to sustain the model at the lowest possible point of surplus?

You can read the rest of the recount by Amy Rennison here at

A (micro)creditable partnership

India Post has inked an agreement with National Bank of Agriculture and Rural Development (NABARD) to facilitate micro-credit to women-run Self Help Groups (SHG) in eight states and north eastern states.

In this strategic partnership, India Post will lend the unparalleled reach it has gained into India’s remote villages and the credibility as a reliable family insurer through its various life insurance schemes to provide a big boost to NABARD for achieving its purpose of “facilitating credit flow for promotion and development of agriculture and integrated rural development.”

The latest agreement is inked after the resounding success of the pilot project that was implemented in Tamil Nadu as highlighted in

This project was first implemented in 2006 as a pilot project in a number of post offices in two districts of Tamil Nadu…It was extended to three additional districts and all post offices in these five districts are currently participSo far, 165 SHGs have received these loans, for a total loan disbursement of Rs 1.35 million (USD 29 thousand). Additionally, 2,900 SHGs have been formed to create credit linkages with 2000 post offices in nine divisions of the state.

A presentation in India Rural Business Summit organized by Federation of Indian Chambers of Commerce and Industry (FICCI) provides finer details on the pilot’s working model, and metrics.

On the whole, India Post’s credibility among the rural and urban poor as one of the least corrupt, and hence the most reliable government organization, extensive reach, and success on a smaller  scale implementation seems to leave only the possible problems due to scaling up to worry about in this initiative.

Just in case you didn’t believe me

The global credit crunch has led to a significant drop in fund flow to the microfinance sector. Banks, which are required to provide 32-40 percent of their loans to the priority sector (which includes rural credit), are the largest providers of funds to MFIs.

They lend to microfinanciers, who then on lend to the poor at a higher rate. But with banks’ lending rates rising more than 200 basis points over the last quarter, microfinanciers are finding it tough to get enough funds to sustain business.

This is an excerpt from an article on

News in Microfinance

Here are two stories from

And then there were a few

So, it looks as though many smaller MFIs will now become absorbed by the larger players as the microfinance sector is expected to enter into period of substantial consolidation within India. According to,

The sector, which has lent close to USD 221.9 Million (Rs 10,000 crore), is moving aggressively to expand its operations. With tighter capital adequacy norms expected to come into place in 2009 and 2010, a whole lot of smaller Microfinance Institutions (MFI), are expected to be acquired by larger players.

These larger funds are getting help from outside investors for potential targets to accelerate their growth trajectory and hasten potential exits.

Venture capital funds which specialise investing in MFIs are aggressively scouting for targets in India and according to industry information around USD 100 million is expected to be invested during 2008 into MFIs. MFIs like Grameen Koota which during April raised close to USD 2.2 Million (Rs 10 crore) is looking at raising a further USD 4.4 Million (Rs 20 crore) in the near future.

Such flux is likely to create criticisms as massive consolidation may lead to MFIs moving further upstream and choosing to forgo their original client bases in the BoP for higher income customers. This is definitely a trend that needs to be watched closely.

Mobile Banking asked to take a breather by RBI

So yesterday the Reserve Bank of India called for banks to halt mobile banking services until it can release its operative guidelines. A significant number of Indian banks have already begun offering such services to its clients in an effort to expand their user base and to provide previously untapped populations access to banking.

But A P Hota, chief general manager at the RBI, advises banks to put plans for mobile payments on hold and to “dissociate themselves from any mobile based money transfer service which has not received explicit approval of RBI or not covered by any of the guidelines issued”. []

Hopefully such standards will come out sooner than later, as we have seen how poorly India performs with regard to financial inclusion.

HDFC to open eight more MFI branches

In an effort to grow from its four existing branches to twelve by the end of the year, Housing Development Finance Corporation (HDFC) plans to open eight more microfinance branches across the nation. The branches would be designed around the self-help group linkage model.

This effort is one in a larger trend by major financial institutions to enter into the MFI space., the source for this article, explains as such:

HDFC’s recent market entry and rapid scaling-up of operations reflects a general recognition by prominent Indian banks that microfinance is a financially sustainable if not lucrative enterprise. Other recent market entrants include banking giants UTI and ICICI, holding total assets of USD 1.2 billion and RUP 3.9 trillion (USD 92.7 billion) respectively. Further details on this movement can be found in the MicroCapital story Commercial Banks in India Delve into Microfinance Investments.

We have also written numerous times on the evolution of microfinance and involvment of traditional players. You can read Prerna’s wonderful post on MFI and Private equity here.

Voice Plans in the Village

Grameen Foundation has recently announced that they will be providing two entrepreneurs seen money to develop Village Phone programs. It will be run through its Village Phone Assistance Center.

Launched in 2007, the Village Phone Assistance Center guides MFIs and other organizations in developing Village Phone products that provide poor communities around the world with affordable and reliable phone access and cell phone business opportunities. One critical resource is the Village Phone Direct Manual, first published in 2007 in collaboration with the International Telecommunications Union. The English-language version has been downloaded more than 1400 times, and it is now available in four additional languages: Arabic, Chinese, French and Spanish.

The grants will be on the order of $10,000, and initial applications should be e-mailed here. The deadline for the first round is August 24, 2008. More details can be read here.

SKS looks to educate its members’ children

Partnering with Career Launcher, SKS Microfinance will be opening 10 school in Nalgonda, Khammam, Rangareddy and Medak districts of Andhra Pradesh that will be English medium institutions for primary school education.

The SKS-CL Academy, in the pilot phase, will provide primary education till third standard using the national open school syllabus with special emphasis on technology. While Career Launcher would manage and run the schools, SKS Microfinance would support the marketing of the schools and provide education loans.

Recognizing that there exists a need beyond only loans to assist individuals in breaking free from the shackles of poverty, SKS is now looking to provide the actual means for such people to acquire the knowledge to improve their own situations.

SKS members can opt for an education loan of INR 3,100 (USD 72) to provide quality education to their children. The school will run at a fraction of regular fees and the monthly fee for KG and Class I is INR 175 (USD 4).

The schools are also open to non-members as well. TC-I along with the community at large will be anxiously watching this program hoping for its success and its subsequent replication across the board.


Op-Ed: The Potential Marriage of Private Equity and Microfinance – Dysfunctional or Blissful?

The composition of the microfinance sector is becoming increasingly hybridized, as microfinance institutions (MFIs) morph into profit-making entities, and global financial institutions such as Citigroup, Inc. or HSBC Holdings become (unintended) vectors of poverty alleviation (refer to “Global Financial Institutions and Microfinance: A Promising Marriage?” for further context). The equation isn’t anything new (in fact, I’ve waxed philosophical about it at length) – “self-interest” + “social good” = “sustainability”, but the actors involved are becoming increasingly fluid, and therefore, so is the landscape. In this post, I will analyze the emergence of another actor – private equity firms – and its implications for the Indian microfinance sector (also refer to and “Should SKS Microfinance go Public? for further background).

Currently, India’s microfinance sector reaches 36.8 million borrowers, of which approximately 25%, or 10 million customers, are associated with the 60 largest microfinance institutions (MFIs). Despite the rapid proliferation of these MFIs, however, the remaining 50% of the borrower market remains untapped, translating, therefore, into a reservoir of untapped profit. For this reason, the involvement of profit-oriented entities such as private equity firms is rapidly accelerating, with at least 4 PE investments totaling USD 43 million since 2007 alone.

For the purposes of providing some background on the nature of private equity firms, a brief summary from follows:

Private equity firms typically seek extraordinary returns and are seen as aggressive, non-transparent, difficult to regulate and uninterested in the broader social aspects of businesses they invest in. PE firms typically invest in closely held companies in which they see possibilities of extraordinary returns that can be obtained through an exit strategy involving initial public offer (IPO) or takeover by large firms.

Naturally, the question that follows, then, is – for what specific reasons are PE firms interested in MFIs? The aforementioned article cites two reasons:

First, there is a perception that the microfinance sector is capable of providing extraordinary returns. Compartamos, a Mexican bank specialising in microfinance, made a successful IPO of 30 percent of its shares with a valuation at 12 times its book value, implying an internal rate of return of roughly 100 percent per year from the time it became a for-profit entity.

Second, studies indicate that returns from the sector are not sensitive to swings in global economic cycles. This makes such investments desirable for risk diversification.

This post continues after the break. Continue reading

TC-I FundWatch

Editor’s note: In order to more quickly provide our readers with pertinent information, ThinkChange India has created TC-I FundWatch, a regular post that summarizes important investments made by social and traditional venture capital firms that directly affect the lives of India’s poor. This way, on Tuesdays, our readers will be able to get a regular update on the financial activity in this fast moving space.


  • Unitus, a nonprofit focused on accelerating access to microfinance that operates in India in addition to other countries, has received a USD 9 million grant from the Omidyar Network. This is the largest grant to date. [Source:]
  • Bharat Integrated Social Welfare Agency (BISWA) has sold USD 5.9 million of its agricultural assets, otherwise known as agri assets to private banks — another example of the growing trend of MFIs securitizing their loans for capital infusions. Grameen Capital India (GCI) was responsible for securing the deal. [Source:]


  • Rabobank, a Dutch financial institution, will establish a $100 million private equity fund in India focused on small and medium size enterprises (SMEs) in the agriculture value chain. [Source: VC Circle]
  • Lighthouse Funds is launching their 2020 Opportunity Fund — a $100 million that will focus on investing in fast growing small and medium size enterprises (SMEs). [Source: VC Cirlce].

MFIs tend to lose focus as they ‘evolve’

A new report released by the Women’s World Banking (WWB) observes that as many microfinance institutions transform from non-profits to traditional financial intermediaries, they tend to shift away from their original focus on helping poor women and instead focus on making larger loans a la a traditional financial institution. The results were disheartening as the report found that:

… five years after “transformation” for 27 organizations and compared them to 25 that had not commercialized. On average, it found the proportion of women served by transformed institutions dropped from 88 percent to 60 percent. It also found that average loan sizes were two to three times greater than those of non-commercialized outfits.

Written by Christina Frank, the report also highlighted the possible benefits of such a transition.

Transformed institutions tend to extend their borrower reach and diversify their product offerings. The study reveals that the number of active borrowers increased by 30 percent a year on average for commercialized MFIs, compared to 25 percent for the non-profits. Also, since many countries do not allow non-profits to take deposits, savings accounts are more widely available with transformed MFIs. The number of savings accounts grew by an average of 45 percent annually for the commercialized institutions, while those in the non-commercialized group that were already able to offer such accounts only saw 28 percent average growth.

This phenomenon is something that needs to be closely monitored, but as can be seen by the report there are arguments for both sides. Theoretically as long as new MFIs come in to serve the now abandoned population, this evolutionary cycle may not be that disastrous, but one must then question the sustainability of the microfinance growth model generally then.


Wrap it Up: Two Papers reviewed by reviewed two recently released papers this week; here is a summary of those.

1. “Should Access to Credit Be a Right?” by Marek Hudon

This is a very interesting question as fields like microfinance have gained so much popularity and success. The paper takes both practical and normative approaches to this issue and frames the overall debate in a way that seems to argue that the framing of credit as a right would significantly contribute to alleviating poverty. The full paper can be found here.

2. Consultative Group to Assist the Poor, Focus Note: The Early Experience with Branchless Banking (On the Potential of Branchless Banking in the Microfinance Sector)

This paper takes information from 18 different countries that employ branchless banking to analyze its effect on both microfinance and poverty generally. The paper highlights the ability of mobile banking to overcome the hurdles that many MFIs face with regard to the lack of well-established banking infrastructures in these countries. The full paper can be found here.

UNIFAD Seeks Innovative Remittance Proposals

The UN’s International Fund for Agricultural Development is looking for innovative remittance schemes to invest $13 million into. The initiative is labeled the Financing Facility for Remittances (FFR) 2008 and the proposals need should focus on “[p]romoting innovative remittance systems and investment channels for migrants.” The objectives are the following:

* Improve remittance transmission and access to remittance services in rural areas
* Link remittances to financial services and products in rural areas
* Develop innovative and productive rural investment channels and opportunities for migrants and community-based organizations

The funding here will be substantial, and the first deadline is for proposals is May 30th.

Through a four-phase competitive process, the FFR will award grant financing of up to USD 250,000 per project to eligible institutions, to be implemented within a two-year period. Applicants must provide a minimum counterpart contribution of 20 percent of the amount requested (or 30 percent for projects in the Latin America and the Caribbean region), of which at least half should be in cash.