Archive for: Indian Microfinance

This is one of those one million dollar questions present at many microfinance forums. A CGAP and JPMorgan report on equity valuation in microfinance in the context of the financial crisis is shedding new light on this debate. Based on our admittedly limited dataset of 21 private equity transactions, MFIs in India are trading at 5.9 their historical book value or close to 3 times the world average. So, are MFIs in India overvalued?

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In some districts of Karnataka State (India) there has been resistance to repay loans taken from MFIs (also refer to the WSJ article on repayment problems in that state). In Kolar the Muslim clergy have given the call, pronouncing the MFI loans as un-Islamic; in Mysore a ten day curfew that followed a communal clash created repayment problems, in Tumkur another local group asked the MFIs to pay some kind of protection money to carry on their business resulting in repayment disturbances The size of the affected portfolio is estimated to be between $12 and 15 million. For the large MFIs, the problem is very small, while some small MFIs have a large problem. The MFIs are confident that the problems will be resolved and that they would recover most of the loans. The affected portfolio is tiny: less than 0.5% of overall outstanding loans. So we shouldn’t think of this in terms of the sub-prime crisis. Nonetheless we should draw lessons from those events.

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