Private Equity (PE) investors are said to be cautious in investing in micro finance institution (MFI) as is reflected in the fall in fund flows from these sources.
The amount of PE deals in the MFI sector has been declining year after year with the calendar year 2012 witnessing only $104.5 million worth of deal compared to
$113.04 million in 2011 and $146 million in the previous year, data from VC Circle shows.
The decline in investment from PE sources prompted MFIs to raise funds through debt instruments, reports indicate. Members of the MFIN, an umbrella organisation of 41 MFIs operating in India, received a total debt funding of Rs 10,200 crore in 2012-13 and this is up 79 per cent from the previous year.
Industry players, however, comment that the increased debt funding is an indication to the growing investor confidence.
Some analysts feel that the dwindling interest from PEs is mainly because of the margin cap imposed by Reserve Bank of India (RBI).
They feel that margin cap made the valuations of micro credit business unattractive. Earlier, some of the MFIs were charging up to 40 per cent interest.
RBI imposed a margin cap of 12 per cent for smaller micro finance institutions (MFIs) and 10 per cent for MFIs with over Rs 100-crore business in August 2012.
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