India Microfinance Investment Environment Profile

This report examines India’s microfinance investment profile. It aims to contribute to information available to commercial investors interested in the microfinance sector. It creates a framework to assess the country-specific investment risk of commercial investments in microfinance.

The report states that the lack of a single legal structure governing MFIs has hampered the level of disclosure in the sector. Attitudes to disclosure vary by the size of MFI. The potential for new international sources of funding in India appears to be limited. Findings include:

• Major market participants perceive the role of foreign investment to be the provision of loan guarantees and equity or quasi-equity;
• Provision of loan guarantees will ensure better borrowing terms for MFIs;
• Equity and quasi-equity investments will help MFIs build up their capital base and be in a better position to leverage large domestic commercial loans;
• Lack of uniform financial reporting by MFIs substantially increases the transaction costs to potential investors;
• Most of the players in the sector see international financing as a means to develop new models and products;
• Microfinance sector risk factors include political, economic, and currency risks as well as risks from geographical concentration, saturation, and unhealthy competition.