Domestic investors are staying away from microfinance institutions (MFIs), which has hit the small players, at a time the sector needs Rs 3,900 crore to Rs 5,000 crore in over three years to sustain a growth rate of 25-30 per cent.

According to rating agency Icra, bulk of the capital raised by the MFIs in the current fiscal was by entities with assets under management (AUM) of more than Rs 1,000 crore. “Raising capital has been easy for MFIs that have reached a certain scale, while the smaller entities continue to struggle,” said Icra.

Several large entities, such as Satin Creditcare and Fusion Microfinance, have been able to raise funds from strategic global investors either as equity capital or external commercial borrowings, unlike small microfinance firms.

Limited interest

One of the key reasons for this is the lack of interest from domestic investors.

“It is a fact that there is a lack of interest among domestic investors, especially for the smaller players, because many of them do not fully understand the sector, its activities and are not appreciative of the short-term field level issues,” said P. Satish, executive director at Sa-Dhan.

“There is also a need for domestic investors to be more patient and look for long-term stable returns. There is also need for more social capital coming into the sector and more robust support from Sidbi,” he said.