The new tougher capital adequacy norms that come into effect from 2011 could see a slew of initial public offers from micro-finance institutions (MF-Is). MFIs will need an estimated additional capital of $500 million to achieve the higher capital adequacy requirements, some of which will be raised through maiden share issuances.

The Reserve Bank of India (RBI) has raised the capital adequacy ratio to 15 per cent from 2011 from 12 per cent now for all non-banking finance companies (NBFCs), including MFIs.

“About 85 per cent of the sector’s total funding is from the banking sector, which may not be sufficient to meet the additional capital needs. We plan to raise additional capital from the capital market,” said Vijay Mahajan, one of the pioneering figures of micro finance in India and chairman of microfinance institution, Basix.

SKS micro finance is likely to be the first micro finance institution to get listed. The company has filed a prospectus with Sebi to raise about Rs 600 crore. However, SKS microfinance CEO and managing director, Suresh Gurumani, did not want to comment on this. Other MFIs like Spandana are also planning IPOs.

The total bank loans outstanding to the sector are about Rs 22,000 crore with the banks funding the MFIs to meet the priority sector requirements.

About 31 MFIs have set up micro finance institutions network (MFIN), a self- regulatory organisation of NBFC MFIs, which aims to work with regulators to promote micro-finance to achieve larger financial inclusion goals.

MFIN are also investing in setting up a credit bureau, which will help improve credit risk management within the sector and ensure multiple borrowing and over indebtedness is checked. An organisation on the lines of CIBIL will be set up. High mark credit information services will also be operational after the Reserve Bank of India (RBI) gives its nod to start the services.

Dedicated private equity funds like the Aavishkaar Goodwell India Microfinance Develoment Company are dedicated funds with 7-year investment horizon in the micro-finance sector with a corpus of $18 million. “We are scaling up the size of the fund to $100 million as the present corpus is nearly disbursed,” said Megha Jindal, investment manager of the fund.