Venture Capital for MicroFinance: Chris Brookfield (Part 6)

Microfinance opportunities are growing throughout the world. The availability of data to support the microfinance trend is available from various sources. Depending on the location of the MFI, the cost of delivering the loan can be very low.

SM: Can you cite that type of data? That is exactly the type of data you need, to be able to make your point with this story. CB: There are myriads of other sources such as the Mixmarket which have lots of historical data which is real on the growth rates on folks like SKS. There is a myriad of data sources on microfinance. I would not even know where to start. The growth rates in India are large. For example, SKS has 650,000 customers right now and last year at this time they had fewer than 300,000 customers. a year before that they had 125,000. That is astoundingly strong growth, and their growth is cash flow positive.

SM: What is the cost of administering these microfinance loans? CB: The way it breaks down for most Indian MFIs is interest rates are 22% – 25%, and borrowing costs are about 12% (some have lower borrowing costs). Their operating overhead tends to be about 10%. So you are running a cash flow positive margin of 2-3% depending on the institution.

SM: Is that the same cost structure you would find in Latin America or Africa? CB: No, each region has a very different cost structure. In India the institutions tend to be exceptionally fast growth, but the loans tend to be small. The human costs of doing microfinance in India are still quite low. In Latin America the growth rates are much slower but the loan volumes are larger and the operating overhead is much higher (they HR costs are much higher). Latin America also has some of the most profitable financial companies in the world. Compartamos is one of the most profitable financial institutions in the world, and it is a microfinance company in Mexico that went public last month. It has a return on equity which is very high, over 40%. That is intensely profitable.

[to be continued]

[Part 5]
[Part 4]
[Part 3]
[Part 2]
[Part 1]

This segment is part 6 in the series : Venture Capital for MicroFinance: Chris Brookfield
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