Despite a slower growth forecast for the Indian micro-finance institutions (MFIs), private equity players are bullish on the sector and believe well-managed companies would beat the slump.

“We are still positive on the Indian micro-finance industry. This is because the clients addressed by the segment have not been affected by the slowdown as they are outside the part of the economy that has been hit by the slowdown, and the demand scenario in the sector remains unchanged,” says Anal Jain, managing director of MVA Ventures.

MVA Ventures has established a $50-million fund for investing in

micro-finance institutions in India.

However, Jain said that micro-finance institutions would post a lower growth this year, because raising funds especially from banks has become

difficult.

Mona Kachhwaha, investment manager at Caspian Advisors, also agreed that there is contraction in the availability of bank credit and there would be slower growth through 2009-2010.

“Being well-aware of the strengths and challenges of MFIs, we will continue to invest in strong and promising institutions. While a slowdown is expected, we are hopeful that well-run micro-finance institutions will emerge from this situation without much impact on their businesses,” she added.

Caspian Advisors manages and advises two micro-finance sector funds — Bellwether Micro-finance Fund and India Financial Inclusion Fund.

Bellwether Micro-finance Fund is a $20-million fund and has made 14 investments so far, while the $100-million India Financial Inclusion Fund would focus on investing in micro-finance institutions as well as micro-finance enablers.

Kachhwaha adds that clients’ credit behaviour continues to be strong as before, and those companies that can manage their funding situation well, through a combination of better planning and cautious approach in lending will pass through this period with ease.

There is no cut-back on the fund size, however, there could be a delay in receipt of funds, Jain added.

“The global financial crisis has made some new mainstream investors in the micro-finance space a little bit wary not because of any apprehension related to performance of this asset class but because of other problems that they are dealing with,” Kachhwaha said.

He added: “However, we expect the support from socially responsible investors not to be affected much by this situation. The quantum of capital commitments is not going to be affected though we could have some delays owing to liquidity issues,”