It was a watershed moment for India's nascent microfinance industry when Silicon Valley-based venture capital firm, Sequoia Capital, famous for its early stage investments in Google, Yahoo!, PayPal, Electronic Arts, YouTube, Cisco Systems, Oracle and Apple among others, announced a $6.5 mn package for Hyderabad-based SKS Microfinance. It signaled the big time arrival of domestic MFIs. On its hot trail are the big-pocket global private equity players. In the last couple of months, three international firms have announced partnerships with Indian MFIs, involving over Rs. 280 cr, with more such deals expected to come shortly. Foreign investors such as Unitus Equity Fund, an international leader in scaling innovative solutions to global poverty, and tech-entrepreneurs such as Vinod Khosla, Ravi Reddy, Sandeep Tungare and Odyssey Capital are pouring in money into Indian MFIs such as SKS Microfinance, Share, Spandana and Adhikar. Added to this are the significant investments in the domestic microfinance space by FMO, a Dutch institution; Netherlands-based Tridos; the World Bank's arm, International Finance Corporation; US-based Accion; KfW from Germany; the UK-based CDC; Quebec-based cooperative bank Desjardins and Oiko Credit of the Netherlands. These investors are investing in Indian MFIs in a big way in the hope of getting healthy returns. And this unprecedented equity participation has suddenly transformed the once mundane industry into an investment hotspot. However, the big question is: Do such hyped investments justify the potential return?
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