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February 26, 2010

The Next Big Thing after Telecom... Microfinance, points out Vijay Mahajan, founder of Basix tracing the evolution of the sector in an article for Business Today.
With the exception of the mobile telecom, perhaps no other sector has grown as fast and as big in terms of customer base as the microfinance sector in India in the past two decades. Today, the MF sector lends Rs 1,000 crore (11 digits) every month!

...In the long run, MFIs will probably resolve into two segments— the developmental MFIs and commercial MFIs. Developmental MFIs will be more focussed on the poor and on social impact, and offer more broad-based financial services such as microinsurance and remittances. Many of them will go beyond financial services and take a livelihood approach. They will have to increase their reliance on funding sources sympathetic to these approaches— such as philanthropic foundations, social investors and governments.

On the other hand, the commercial MFIs will focus on microcredit to those slightly above the poverty line. They will diversify in lending to include housing and personal loans. Their portfolio will grow and they will become increasingly dependent on banks for funding. Some of them would attempt to get a bank licence so as to mobilise deposits, but this will not be a common possibility. Eventually, many of them will get acquired and become specialised divisions of banks catering to the "base of the pyramid", but in search of the fortune there. They will be able to attract private equity and a few may also have IPOs on the stock market

Arun Natarajan is the Founder & CEO of Venture Intelligence, the leading provider of data and analysis on private equity, venture capital and M&A deals in India. View free samples of Venture Intelligence newsletters and reports. Email the author at