In 2016, Ratan Tata, chairman emeritus of Tata Sons, Vijay Kelkar, former finance
secretary and chairman of the National Institute of Public Finance
and Policy, and Nandan Nilekani, co-founder of Infosys and the architect of Aadhaar, joined hands to start an MFI called Avanti Finance.
“Reach, cost and distribution are three key factors driving corporate entities into the microfinance
sector. It is not easy to penetrate rural areas. Often it requires long hours of journey and trained people. Acquiring a microfinance company has a great strategic advantage for cross selling products,” said Abhijit Ray, co-founder and managing director of Unitus Capital.
Svatantra Microfin, a microfinance company headed by Ananya Birla, the daughter of Aditya Birla group chairman Kumar Mangalam Birla, is also enhancing its presence in the micro-lending segment. In September 2018, Svatantra acquired Micro Housing Finance Corporation, a firm which provides home loans to people in the unorganized sector in the microfinance model, for about Rs 300 crore.
“ There seems to be a great rush for entering microfinance sector recently by a variety of investors. This sign itself proves the quality of business and potential growth expectation in microfinance,” according to Udaya Kumar, president of the Microfinance Institutions Network (MFIN).
Private banks have significant presence in the microfinance sector, and they account for a major chunk of lending. The banking sector now accounts for more than 30 per cent of microfinance loan outstanding.
The competition for acquisitions in the sector can be assessed from the case of Chennai-based micro lender Madura Microfinance. While Federal Bank has been in race to acquire the MFI, bids by two private equity firms have now renewed competition for the acquistion, said sources.
In 2016, Kotak Mahindra Bank acquired Bengaluru-based BSS Microfinance. Earlier, RBL Bank acquired a 10 per cent stake in Utkarsh Micro Finance, which is now a small finance bank. In July 2016, IDFC Bank acquired Trichy-based Grama Vidiyal Microfinance, its second deal in the space. Earlier, IDFC had taken 10 per cent equity in East India-based ASA International India Microfinance. Futher, DCB Bank had acquired 5.81 per cent in Odisha-based Annapurna Microfinance.