India: Michael and Susan Dell Foundation looks to exit group-lending MFIs in India
By Namrata Acharya, Business Standard
Michael and Susan Dell Foundation is considering exiting group liability-based microfinance lending in India. It plans to redeploy its investment in micro housing and other projects.
Most microfinance institutions (MFIs) in India follow the group lending model, in which the members are collectively responsible for repayments. While the foundation had taken the decision in 2009, just before the crisis in the microfinance sector, it did not make any fresh investment in the sector after the crisis.
In October 2010, a legislation by the Andhra Pradesh government had severely curbed the operations of microfinance institutions in the state, where about 70 per cent of the industry was concentrated.
However, according to spokesperson of the foundation, the decision to restrict the funding to the microfinance sector was not guided by the crisis.
“In fact, we had decided to restrict our investments in our urban start-up MFI portfolio in late 2009 (the crisis happened in October 2010) because in 2009, we realised that even urban start-ups were attracting high level of investor interest. It was from that fact that we decided that our philanthropic dollars did not need to be invested in group liability based micro-credit in urban India,” said a spokesperson of Michael and Susan Dell Foundation.
The foundation’s commitments in the sector in India is close to $30million (Rs 135 crore), of which non-banking finance company (NBFC) MFI sector accounts for $10m (Rs 45 crores).
“Given that no new urban MFIs were set up in the period following the 2010 crisis, investing in new MFIs really wasn’t a valid option. Moreover, we decided we needed to focus our support on MFIs that were already a part of our portfolio, and that showed signs of viability under new regulations,” said Geeta Goel, Director, Microfinance at the Michael and Susan Dell Foundation .
The foundation is focusing on products like micro-mortgages, pensions and savings.
Some its investments include Micro Housing Finance Corporation and Basix SubK, a Basix group company which provides residents of rural, urban and semi-urban areas with a mobile technology based transactional platform for access to digitized services. This apart, foundation is also focusing on the development and adoption of sectorwide transparency and customer protection practices, said Goel.
Recently, it w supported the development of the Progress Out of Poverty Index to track poverty levels of microfinance clients, including how they change over successive loan cycles or product customizations.
Michael and Susan Dell Foundation begun investing in the MFI sector in 2006, when it started making investment in new and urban-focused MFIs.
“The rural model was well accepted, but for a variety of reasons investors had been reluctant to back MFIs in urban settings.We believed that by taking early risks and showcasing the viability of the product in urban markets, we could catalyse other investors’ interest in this market and significantly enhance poor families’ access to financial services,” said Goel.
Over the next three years, the foundation invested in eight early-stage MFIs, all focused on serving the urban poor.
“During that same period, commercial investments in MFIs started gaining steam. Even urban start-ups – our area of focus – were attracting high levels of interest, indicating that the market itself was ready to support growth of the sector,” said Goel.
The foundation, which held about six per cent stake Bangalore-based Ujjivan, too is set to exit Ujjivan by the end of this month, confirmed Samit Ghosh, founder and Managing Director, Ujjivan.
Foundation spokesperson did not comment on the issue.
“We’re working to establish an ecosystem of healthy organisations that are capable of thriving and growing independent of us. We know that not every investment we make will follow that model. There are just too many variables at play – the 2010 crisis is a case in point. But we view our model of catalytic philanthropy as key to seeding the sector with viable, responsible organisations focused on providing India’s urban poor with access to the range of financial tools they need to achieve economic stability,” said Goel.
The foundation has committed about $100m (Rs 450 crores) in India over the last few years, 70 per cent of which has been in the area of education and health.