Data released by Microfinance Institutions Network (MFIN) shows private equity investors (PEs) invested $168 million (close to Rs 10,000 crore at current value) in the microfinance sector in 2012-13.
Besides PEs, investors multilateral and government-supported funds like SIDBI and IFC also invested in the sector during the year. In fact, reports suggest that these kinds of investors contributed a large part of the funding for the sector.
Investments came mainly from funds like International Finance Corporation (World Bank investment arm), ShoreCap, Avishkar, SIDBI and Lok Capital. SIDBI is mandated to play a developmental role with realistic return expectations.
Generally, private equity funds look at a return of anywhere between 20-25 percent over a period of 5-7 years. The development funds, on the other hand, look at a moderate return of 10-12 percent over a longer term of 10 years. In the pre-crisis era, PEs had made five times to seven times return from their investments in the sector.
Alok Prasad, CEO of MFIN said development finance institutions (DFIs) and social funds are investing into the MFI sector.
Unlike pure private equity funds, they have a developmental mandate and seek moderate returns over the medium term.