Tuesday, September 04, 2012

“PROFITS VS SOCIAL IMPACT IS A CHALLENGE”

THE MICRO-FINANCE SECTOR IN INDIA HAS RECORDED MORE THAN 100% GROWTH IN THE LAST FEW YEARS AND THE GOOD RUN IS ATTRACTING FOREIGN FIRMS LIKE BLUEORCHARD FINANCE S.A., WHICH MANAGES CLOSE TO $1 BILLION IN ASSETS AND SPECIALISES IN MICRO-FINANCE. B&E’S AVNEESH SINGH TALKS TO CEO JEAN-PIERRE KLUMPP

B&E: As a leading investor, how bullish are you on the future of micro-finance, particularly in India?
Jean-Pierre Klumpp (JPK): We are highly optimistic about India’s future. It is a fascinating market because of its size and is in many respects a world in its own. Even as far as the population is concerned, it has both the top of the pyramid – which is doing really well and is recognised around the world – as well as the bottom of the pyramid that despite being very broad, does not have any access to finance. We, as micro-finance irrigators, now need to provide developmental aid to this very section of the society. In fact, because of its demographics, India needs to have something that is almost mechanical in deploying the first level of financial irrigation so that the individual germ of labour and creativity can be fertilised in such a way that it comes out on its own. An idea is just a small seed and micro-finance institutions (MFIs) basically act like water, which makes it come out as a plant. Further, when it comes to financing, there are many regions in India which are absolutely dry. So we would like to fill that void. We are motivated by the growth that the Indian economy is showcasing and as such would like to play a harmonious & balanced role.

B&E: Will MFIs continue to depend on banks for capital infusion or are there new financing structures available to them?
JPK: If you want to grow you need to have private capital. So either you are a private equity investor yourself or you find one who invests in MFIs. In fact, private equity is the blood in the institution that helps in the transformation and growth of MFIs. However, I am happy to say that soon we will have other funding options like non-convertible debentures (NCDs) and commercial paper, which will be a boon for MFIs. Then, we also need securitised products like Collaterised Debt Obligations (CDOs), but we need to be careful with them as after the financial crisis they do not enjoy good reputation. Slowly, we need to substitute bank loans with funding from other sources which include funds from private players.

B&E: Recently, a lot of financing deals, both equity and debt, have taken place in the global micro-finance space? How will this impact the future investments in the sector?
JPK: This industry is still very young and that is what is opening a debate. Take India for instance. I think the recent IPO of SKS Microfinance raises a question about whether the public sector is ready to invest in these kind of institutions. If you look at the market, it is self structuring and this is what will bring discipline in the institution. You are going to the market and finding investors but as soon as you do something that the investors do not like, they will leave you. I think the last transaction brings in market discipline. However, the challenge is to manage a double bottomline (provide investors with both a financial return and a social impact). Though, there is no romance in finance, in micro-finance there is a little romance because you like the idea of making such a big difference. The last transactions show that micro-finance has the ability and skill set to attract talent who can manage these transactions. But they have to make sure that they can cope with complexity of the transactions because if anything goes wrong, then it will not only impact the individual but the industry as a whole.


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