And then there were a few

So, it looks as though many smaller MFIs will now become absorbed by the larger players as the microfinance sector is expected to enter into period of substantial consolidation within India. According to Microcapital.org,

The sector, which has lent close to USD 221.9 Million (Rs 10,000 crore), is moving aggressively to expand its operations. With tighter capital adequacy norms expected to come into place in 2009 and 2010, a whole lot of smaller Microfinance Institutions (MFI), are expected to be acquired by larger players.

These larger funds are getting help from outside investors for potential targets to accelerate their growth trajectory and hasten potential exits.

Venture capital funds which specialise investing in MFIs are aggressively scouting for targets in India and according to industry information around USD 100 million is expected to be invested during 2008 into MFIs. MFIs like Grameen Koota which during April raised close to USD 2.2 Million (Rs 10 crore) is looking at raising a further USD 4.4 Million (Rs 20 crore) in the near future.

Such flux is likely to create criticisms as massive consolidation may lead to MFIs moving further upstream and choosing to forgo their original client bases in the BoP for higher income customers. This is definitely a trend that needs to be watched closely.