FINANCIAL CHALLENGES AND OPPURTUNITIES:

The growth of microfinance in India is attributed to the rising demand for financial mainstreaming in the
poorest sections of the society and the supply side gap of organised financial system to cater to such needs.
There has been a spurt of growth in financial leverage of the
sector with some of the MFIs enjoying Debt/Equity of over 5
times. However, in general the Microfinance industry has
been kicked on by equity growth. Most of the debt financing
in the sector is by banking sector in the purview of their
Priority Sector Lending needs. This provides an opportunity
for next generation MFI-NBFCs to look for alternative areas
of financing. Until recently, the sector has been ignored by overseas investors and domestic investors were
the main sources of financing for the sector. So with new benchmarks of standardisation being set up in the
sector, MFIs can leverage overseas investments to meet their financing requirements. The recent regulations
by RBI provides a stable regulatory environment to the sector. The central bank has initiated steps to evolve
a framework of prudential regulation of the for-profit microfinance entities. It is an opportunity in disguise
for
companies with higher operating effectiveness, like Svatantra
microfinance. The sector will see an exodus of companies that are not
efficient enough given the high operating barriers and increased
scrutiny and regulation. It will also result in a more organised
structuring of the sector in the medium to long term, thereby creating
better opportunities to raise investments from foreign sources.
Securitisation of loans is an effective tool which can be used for debt
financing and capital mobilisation. It presents opportunities to tap into the
growing PE sector that can be a source of long term financial
leveraging
.Crowd sourcing of financing certain projects is another approach that
can work in the Indian context. For example, Rang De, a MFI raises
capital through social investors. The growth of MSME sector will also
be facilitated by microfinance institutions through cluster based
investments. Involving social and angel investments is a viable option
for that. For example, Citi group provided contributions in Haiti after the
earthquake for micro financing the redevelopment of livelihoods. The size of portfolio is also a future
consideration for raising finance. MFIs with operating
geographical diversity and a better multiplicity of client portfolio
has better access to capital from banks and DFIs. So the
management of risks and size of the portfolio is equally
important to raise low yield debt finance and credit channels.