Micro Finance Institutions in India are now facing a massive demand-supply gap in the sector. The challenges in terms of scale as well as better management & governance have compelled MFIs to tap commercial sources of funding and deposits. Commercial and quasi-commercial foreign investment is one growing and potentially important source of funds for promising MFIs. A recent article published by economists at the MIX Market also suggests that MFI asset quality is uncorrelated with macro-economic events. This would have surely awoken some Private Equity Investors to the attractiveness of investing in Microfinance.
With the Capital Markets warming up to the idea that Microfinance is an investment-worthy sector, the problem of currency risk has been the major consideration for Indian MFIs and for the industry as a whole at a global stage and what are the methods employ by microfinance industry to mitigate this vary risk.

I believe that India is where the action is and new funds are now here for the asking. We have seen this recently in two large private equity deals: the Legatum Global Development and Aavishkar Goodwell investment of US $27m in Share Microfin and the Sequoia Capital lead US $11.5m investment in SKS Microfinance.

All these developments demonstrate that increasingly private investors are attracted to the intrinsic value in microfinance businesses and to the double bottom line returns generated in microfinance.