NextBillion - An Initiative of the William Davidson Institute at the University of Michigan

Wednesday, September 17, 2014

So what if regulations and restrictions are preventing foreign investors from enlarging their share of the Indian financial pie. Instead of raising their holdings in companies such as HDFC BankBSE -0.44 % and IDFC, the infrastructure lender which is turning into a bank, investors are chasing the profitable microfinance institutions.

Microfinance — giving small-ticket loans to tiny businesses in semi-urban and rural India, which by definition is not for the sophisticated investors — is increasingly becoming the hot favourite of global investors. The share of foreign holding in Indian microfinance institutions has risen to nearly a third from just about a fifth a few years ago, data from rating companies show.

Multilateral lender International Finance Corp and private equity Caspian were among the ones to invest in Indian microfinance companies when their funding dried up with little to invest in the corpus of Small Industries Development Bank of India and when others were hesitant.