BankerInIndia

Finding the Windows of Opportunity

Several investments in loosely related areas of microfinance have caught my attention recently...

A while back, leading U.S. VC firm Draper Fischer Jurvetson invested in one of the Indian mobile payment startups I mentioned on August 21st. mChek, has now established itself as a credit-card linked mobile payment service in India for all payments to the mobile service provider, Airtel. It is currently working to add debit cards and an expanse of different kinds of vendors as well, so as to allow your cell phone to do the work of both a card and a POS (point-of-sale) terminal. This would enable a user, in an example from mChek's website, to look up information on his cell phone and make a purchase from his existing credit card account by sending an SMS to the vendor and entering a PIN code, without ever leaving the couch or having to log on to a website on a PC.

At the same time, a limiting factor for these mobile payment companies, Obopay included, is that you've got to have a pre-existing credit or debit card to use most of the services, especially in developing countries like India. This automatically cuts out the majority of the population, particularly the target market for cheap, mobile, technology-enabled payment and savings services.

Then I see an investment like the Accion just made in United Villages, a company that is trying to use "drive-by" wireless technology to provide people in rural areas of developing countries temporary internet service while they remain in the vicinity of the mobile access point, whether its installed in a roadside Internet kiosk or on top of a traveling bus.

With this temporary Internet access, those previously excluded from the world of communications technology can start getting on the web, sending and receiving messages with their SMS or email-enabled cell phones, and retrieving information. United Villages is seeking to encourage use of its "village area networks" by providing users with a lifetime phone number, email address, Internet access, and a stored-value account for under $1 per person.

Can this type of service also enable faster spread of bank accounts and the savings accounts in India so as to spur adoption of mobile payment systems and mobile e-commerce for rural populations?

In digging Board Members' bios, I found out that mCheck is a spin-out from A Little World, a financial services company that recently received an investment from Legatum (which also purchased a majority stake in SHARE). A Little World is looking to allow microfinance clients access to savings and borrowing accounts at mainstream banks by using bio-metric data, RFID cards, and mobile phones to establish identities and meet typical banking KYC norms, thus allowing these customers access to more financial products and services.

With a loan from a local microfinance institution, a bank-linked savings account established by a company like "A Little World," a cheap cell phone with a mobile payment application like that of mChek's, and a nearby "village area network," the information and economic power of the average Indian villager could be multiplied by many, many X.

How do we get there from here?

Big Milestones, MIX hits 1,000, Sonata hits 11,000

This week saw the announcement of the 1,000th MFI to list itself on the MIX market, microfinance's industry clearing house for investors and seekers of funds for MF (something akin to a developing world Bloomberg...).

In the meantime, Uttar Pradesh-based upstart Sonata, incidentally the 1,001 MFI to list on the MIX, has now surpassed 11,000 borrowers in its first full year of operations (they started out the year at less than a thousand clients). I first wrote about when they acquired Jeevika, a Madhya Pradesh MFI, back in March of this year.

Larger and larger growth numbers in shorter amounts of time will continue to be a big theme as we start to see more experienced, professional management teams employing best practices in their start-ups and harnessing significant equity capital and leverage from the start.

For the bigger and 2nd tier MFIs looking to expand geographical presence and absolute portfolio size quickly, I would look to see more acquisitions the next twelve to twenty-four months as increasingly sophisticated investors and management teams scramble for growth and dominance in this rapidly changing space.

Mobile Payments on the Move

The former VP of Payments from Paypal is hatching a mobile payments startup in Delhi called Eko, which, although still in stealth mode, came to the attention of Sahad PV's VC Circle yesterday. While their product/solution seems to be in the works, Venturewoods' message board held a few explanatory comments from founder Sanjay Bhargava and his friends and supporters in the Indian VC community.

And just announced today in Business Standard, another Indian mobile solution company mChek, has linked up with Airtel to start providing mobile payment services in Gujarat to existing customers with an existing phone and existing credit card.

There have been several pioneers of mobile payment services in Europe (Ringo, Netsize,Macalla) catering to customers who already have bank accounts, regular bills and Internet banking but until now it seems there have been only a few stories of developing world players catering to customers with no existing financial infrastructure. These include Fundamo in Southern Africa and the famously successful SmartMoney from Smart Communications (detailed in this case study from the World Resources Institute).

Indian microfinance has been bereft of a good, independent (i.e., not FINO) technology solution to date, a shame considering the attention and money that's been lavished on the larger MFIs in India as of late.

This will soon change; will "Eko" or "mCheck" play a part?

Competition Picks up in Gujarat

Mid-size commercial retail bank Development Credit Bank (DCB) has announced it will be launching a microfinance-oriented division, beginning with several branches in Gujarat, a coastal state in Northwestern India famous for its exportation of businessmen, the birthplace of Gandhi, and as one of the last sanctuaries for the Asiatic wild ass (pictured above).

Here are the quotes from Nasser Munjee, Chairman of DCB, regarding the state-by-state microfinance expansion plans.

This could impact existing NBFCs and MFIs vying for the increasing microfinance market in Gujarat particularly Ahmedabad-based MAS Financial, and possibly Dahod-based Vardun Trust, depending on where DCB puts its planned three Gujarat branches (the first DCB branch will be in Dadiapada, putting it within a 300 kilometer radius of the other two organizations' headquarters). Banks like Baroda, HDFC Bank, ICICI, Standard Chartered and several others are also quite active in the region but typically cover more upmarket users of credit (established shopkeepers, two-wheeler and auto finance etc.)

Gujarat is a state with a strong culture of commercial activity and entrepreneurship. I've often heard it joked that "80% of the Indian immigrants in NYC" hail from this peninsula bordered on its south by ocean and on its north by harsh desert plains.

A Peek Inside the Next SKS Round...?

I've just come across some Microfinance chat room noise that SKS is apparently in the midst of raising another equity round - this time $30 mm, more than twice the size of the March 29th Sequoia-led raise!

Sounds as if most of the money will come from existing investors Seqouia, Odessey, Unitus, Vinod Khosla, SIDBI, Ravi and Pratibha Reddy and others, with $4 mm earmarked to come from a a single new investor who will set the price.

Another big raise for SKS will certainly raise the stakes for the rest of the big 4 in India (SHARE, Spandana, and BASIX)...more foreign PE money on its way into Indian microfinance...curious to see what multiple they pay on SKS's '07 earnings.

60 Years of Indian Independence

At the stroke of midnight on August 14th-15th, 1947, spurred by years of non-violent protest by Mahatma Gandhi, Jawarhalal Nehru and Sardar Patel, among others, the British Empire under King George the VI, Winston Churchill, and its last royal administrator in New Delhi, Lord Louis Mountbatten, 1st Earl of Burma and Viceroy of India, peacefully released  their political grip on the Indian sub-continent and allowed India's Congress Party leaders to wrest control of the country away from 565 semi-autonomous princely states and British-era colonial provinces, enabling the creation of the world's largest and most diverse democracy.

Sixty years later, following a long and wallowing experimentation with both nationalist and socialist regimes replete with communist-lite redistribution and regulatory regimes, a country that was forged out of a three and a half century Imperialist mercantile occupation has become one of the world's most vibrant and explosive economies, producing global leaders in engineering, technology, science, medicine and business.

Today's India still faces massive challenges of poverty, bureaucracy and corruption, but through the work of several generations of Indian leaders and the foresight of its current Prime Minister, economist Manmohan Singh (who's speech from the Red Fort in Delhi today again focused on the country's future whilst paying homage to its past freedom fighters), India is free to chart its own political course in the world while its entrepreneurs, scientists and engineers continue to peddle forward the wheels of the global economy, just as Gandhiji's spinning wheel changed the world more than a half century ago.

IFC Stands Tall Over Latin American Microfinance

The IFC has been busy in the last month making investments in two more Latin American banks and loan commitments to a leading Moroccan MFI.

During July the IFC invested $7.1 mm for 18% of Banco Amigo Mexico (putting the bank's implied post-money value at almost $40 mm) and over $6 mm for a 6.5% stake in Peru's Mibanco valuing that institution at $92 mm post-money. Mibanco currently has 330,000 clients and a loan of more than 1 billion Peruvian Nuevos Soles (US $317 mm for those who haven't hiked the Inca trail).

In July the IFC also made various loan guarantee commitments to Morocco's Al Amana.

These acquisitions and commitments reveal IFC's increasing focus on the MF space. Their appetite for exposure to microfinance certainly wasn't hurt by their windfall take from the Compartamos IPO. It will be good if they continue to make investments at market prices and on commercial terms and therefore without crowding out the mainstream PE and VC investors who have finally come to the table, particularly since the IFC cites part of its mission is to attract more commercial capital to invest in these same companies and markets. These three deals do seem to be in that vein.

The IFC has been most active in MF in Latin America. They currently support 23 microfinance companies in eight countries across the region: Bolivia, Brazil, the Dominican Republic, El Salvador, Haiti, Nicaragua, Mexico, and Peru. Combined, the companies provide financial services to 1.5 million clients.

Back to Business

A lot has happened in microfinance since I was away in Africa.

The IFC, FMO, and Deutsche Bank have invested an undisclosed amount in Hyderabad-based MF Fund Avishkar-Goodwell. Here is the IFC's Press Release. I believe A-G had a $10-15 mm fund previously and as the new PRs mention that A-V aims to put together a $25 mm portfolio of investments, I assume $25 mm is now the current total of capital commitments from their investors.

In a rare and significant piece of microfinance news out of China, HSBC has announced that it will launch a rural bank in the country following its receipt of approval from China's Banking Regulatory Commission.

In addition to the annual Microfinance India Conference on October 9th - 10th in New Delhi there will be a simultaneous Investment Fair sponsored by Rabobank and ACCESS Development Services which will include a technical panel on Investment in Indian Microfinance featuring speakers Geoff Davis (UNITUS), Vikram Akula (SKS Microfin), Blaine Stephens (MiX market), Vineet Rai (Aavishkaar Goodwell), Caitlin Baron (Michael and Susan Dell Foundation) and Mark Stoleson (Legatum Capital).

On the Peer-to-Peer Front:

Prosper is expanding operations to include Japan and other Asian countries and is also investigating the creation of a secondary market for the loans its lenders generate.

Another p-2-p lending hopeful, Globefunder, has received $1.5 mm in seed funding in what looks to be a for-profit reincarnation of Kiva. Here's a video of their business plan (oversimplified explanation of the global MF market opportunity, but at least short and concise).

My biggest critique is that the market they seek to tackle, the "global microfinance market" is not a single homogeneous entity as they seem to describe it but rather a patchwork of different (and often burdensome) regulatory, cultural, and infrastructural challenges. In-country regulators may also not look kindly at wealthy foreigners lending to local poor borrowers for a profit, which is why Kiva has worked as a non-profit, but might not as a for-profit company.

A final note...

I want to thank my readers again. In July this blog surpassed 10,000 page views and is now averaging nearly 50 hits a day. There are readers from 6 different continents and places as far flung as Lincoln, Nebraska; Sydney, Australia; Moscow, Russia; Johannesburg, South Africa; Sao Paulo, Brazil and Hyderabad, India.

If you find my tales of travel, investment, and cultural bewilderment inspiring, informative, or simply amusing, please continue to stop by and forward to like-minded friends...I'll try to keep the posts frequent and relevant for my increasingly diverse audience.

Pictured above: A sacred cow awaits my return at the Indira Gandhi Airport in New Delhi, India.

Southern Africa in Pictures...

So I'm back in Delhi after an incredible trip to Mozambique and South Africa, but before I get back to blogging about microfinance, economic development and other tales from India, I wanted to share a few more shots and stories from my journey to the southern hemisphere.

From sitting in a tiny seat on an $8 bus ride across rural Mozambique to a decked-out Landrover on an all-inclusive safari in Kruger National Park (click here for an unbelievable YouTube Kruger Safari), from a trip to the Zimbabwean border where refugees are flooding into a South Africa to deserted Mozambican beaches where humpback whales play just past the breakers, from a from drive past the slum-lined airport in Capetown to the green and pristine Cape of Good Hope, I was able to see different sides of a civilizational puzzle, at times both depressing and inspiring, made from various layers of economic development and environment, different levels of goods and services and diverse life situations of people, black and white, rich and poor, African and foreigner finally being integrated in the Southern tip of this fascinating and beautiful continent.

I can't wait to go back.

Here are a few of the more memorable snap shots from my journey.

Sunset on the beach across from Hotel Costa Del Sol; Maputo, Mozambique.

Local couples and families flock to the rising tides at dusk; Maputo, Mozambique.

Deserted beach north of Tofo; Barra, Mozambique.

Walkway to the Cape of Good Hope; Capetown, South Africa.

Mozambicans line up to use the town's only ATM at 830 AM in the morning, a phenomenon I described in my post from July 26th; Maxixe, Mozambique.

AIDS mural; Maxixe, Mozambique.

My friend the Peace Corps volunteer at her community center for girls and young women (PROLIR); Maxixe, Mozambique.

On a night-time game drive looking for leopards; Kruger National Park, South Africa.

Photography in the African bush; Kruger National Park, South Africa.

Exhibit in the cell block where Nelson Mandela was held as a political prisoner for over 20 years during South Africa's Apartheid era; Robben Island, South Africa.

The Victoria Waterfront in front of Table Mountain; Capetown, South Africa.