Country Case tudy: Scaling Up India - Formalization of Microfinance Institutions

Vineet Rai, co-founder and director, Intellecap

[|Intellecap] stands for "intellectual capital."

60% of the company is owned by Vineet, friends and employees.

Microfinance and india is an exciting market. Estimated market size is between 57.9 and 245.7 million clients. (57.9 million households are below the national poverty line.)

Together there have been disbursals of around US$3.7 billion, addressing "almost seven percent of our demand estimates of US$51.4 billion).

Indian MFIs appear to offer exceptional returns: around 20%, compared to around 5% in other regions such as Latin America. It's also making the most social impact. Lending at the lowest interest rates worldwide.

Number of outstanding borrowers has grown from 0.6 million in 203 to 5 million in 2006. Expecting continuing and accelerating growth (more or less an exponential curve) for the next 6 years. By 2012 expecting to have US$6 billion (10% of which will be equity).

Els Boerhof, partner, [|Goodwell Investments]

Indian microfinance has grown quickly, but existing infrastructure is inadequate.

Working with Intellecap on something called [|Intellecash].

[|Equitas] in India was one of the first MFIs.

The IntelleCash approach aimes at providing the following pieces of the puzzle:

*Financial linkages
*Human resources

Standardization enables franchisees to succeed faster.

The IntelleCash network will have MFIs across India, particularly in underserved areas.


There's no dearth of money.

Microfinance by its nature is driven by trust, and it takes awhile for trust to build.

The rapid growth rates (300%) may create some of the same problems for microcredit that led to the sub-prime crisis.


It's a big myth that microlending is done to farms. Microfinance in India is mostly lending to landless borrowers.

If you're structured as a for-profit entity, how do you invest in all the areas you need to: hand-holding, providing technical capacity?

I behave like an entrepreneur. I began at the time of the dot-com bust. The risk that I carried was that nobody bought the idea. I along with 2 or 3 employees took a very miniscule salary. It took us years to raise the first million. Since then we've jumped to 6 million.

Microfinance has a brilliant structure but will not actually remove poverty. It has a very big role to play in dealing with poverty, but it cannot solve poverty. You need a layered approach.

There is no dearth of liquidity in India. The influx of dollars has been pushing up the rupee. The way to invest in India is equity. Debt is not really an option. I don't know when this will change.

When you make an equity investment, what kind of ownership structure do you create?

When we say franchisee, we don't mean like a McDonald's franchise. I'm using the term very loosely. We don't really have a brand. With demand outstripping supply, people will walk in regardless of what brand you have.

We used to believe it took 2 years for people to launch a microfinance institution. We wanted to bring that down to 90 days. This meant creating training manuals, other materials in a very standardized way. These things appear very simple to us, but when you go and do it yourself, it's actually a very complex process.

Our goal has always been to be a minority stockholder. That's basically how we are structured.

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