Investors Provide a Business Case for Quality Financial Inclusion

The Sponsors: (from left) Sanjay Sinha (EDA Rural Systems and M-CRIL), Robert Annibale (Citi), and Victoria White (ACCION International)

> Posted by Anita Gardeva
When we ask who are the key players involved in bringing about financial inclusion, investors are not the first to come to mind.  But they do play an important role, and as I listened to the speakers during the Microfinance Cracking the Capital Markets, South Asia conference, held in Delhi last month, I heard them repeatedly say that they care about the same dimensions that the Center emphasizes in our financial inclusion vision.
The conference brought together investors, bankers, venture capitalists, microfinance leaders, and others to discuss the current challenges of the Indian microfinance sector.  As they talked about the risks facing the industry, what they look for in investees, and how they view the future of the industry, they expressed a business case for pursuing financial inclusion in a comprehensive, holistic manner.
Product diversification. Conference participants agreed that an immediate risk facing the microfinance industry today (especially in India) is the mono-product business model.  S. Viswanatha Prasad, Managing Director of Caspian Advisors, shared his prediction that value in the traditional single-product MFIs will dip because investors will be looking for product diversification. Other investors said that institutions that offer a range of products offer greater value to clients and are better positioned for long-term sustainability and profitability.
On the other hand, part of the appeal of the single-product model (and especially group-lending) is its ability to be scaled rapidly. Sandeep Farias, Managing Director of Elevar Equity, wondered why it was difficult for MFIs that have multi-product strategies to achieve scale. He suggested that we go back to the drawing board and design a new model for microfinance that better addresses client needs.
Quality products that address client needs. In addition to increasing the range of financial services, the panelists highlighted the importance of quality.  Sanjay Sinha, Managing Director of M-CRIL, emphasized that flexible and suitable products are key to competing in a crowded market and Mr. Farias noted that institutions should seek to demonstrate that they offer client-focused pricing and innovation within products.
Serving new geographies. Investors also pointed out their enthusiasm for organizations that serve new client segments. Bejul Somaia of Lightspeed Advisory Services, a mainstream investor, said that a unique geographical focus is one of Lightspeed’s main criteria for potential microfinance investments.
Investors expressed their belief that organizations that exhibit the above traits will be the top MFIs in the next decade.  As microfinance leads the way to financial inclusion the industry will expect more from tomorrow’s superstar financial service providers.  Vishal Mehta, Managing Director of Lok Capital, pointed out that we still have the opportunity to build a global financial inclusion in a way that benefits people and minimizes events such as the recent credit crisis, but first we must create a new and valuable business model.  The conference was a rallying cry to MFIs to do just that.
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