NMI invests in India and Nigeria - in the first round
“The first prerequisite for success in microfinance is that you are very careful when selecting investments. Microfinance offers great opportunities, but also many pitfalls”, explains Richard Weingarten, Managing Director of the Norwegian Microfinance Initiative (NMI).
For this reason the new microfinance institution spent a lot of time in its first year of operation on building up extensive, in-depth understanding of markets, their participants and operating parameters, as well as on strategic planning and recruitment.
“We have looked at a number of potential investments and have more under consideration, and we have now closed on our first investment: the NMI Global Fund has committed USD 5.8 million (close to NOK 35 million) in the India Financial Inclusion Fund (IFIF), an investment fund that focuses on equity transactions for rapidly growing microfinance institutions in the Indian market”, says Richard Weingarten.
He goes on to point out that IFIF, which has committed capital equivalent to around NOK 450 million, is a major player with a particular focus on people who do not have access to traditional financial services – a group that represent 80% of India's population.
“Moreover, IFIF emphasizes social considerations in striking the balance with profitability to a greater extent than is usual in India, and has already passed the one million customer milestone following its launch in 2008”, he adds.
India and Nigeria
India is designated as a priority area for NMI, and is a country where microfinance is already a large and well-established phenomenon, and an important factor in the strong economic growth that some parts of the country have enjoyed in recent years.
“India has both a culture and a regulatory climate that are favourable for microfinance institutions, but even so investing in Indian Microfinance is far from problem-free. In some cases local politicians and religious leaders are opposed to the population having access to banking and credit”, explains Richard Weingarten. He adds that Nigeria, Africa's second largest country, is also a selected priority area for NMI:
“The Nigerian population is characterized by creativity and a pronounced entrepreneurial culture, but 79% of the country's nearly 150 million people do not currently have access to banking or financial services. To put it another way, there is enormous demand for new microfinance institutions”, he points out.
In more general terms, Richard Weingarten explains that the microfinance market was affected by the deterioration in economic conditions seen in the wake of the global financial crisis, but microfinance has proven to be considerably less sensitive to the economic cycle than other types of financing.
“This means that microfinance has proved its value for counter-cyclical investment”, concludes Richard Weingarten.