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> Posted by Ira W. Lieberman, Todd A. Watkins, and Anna Kanze

We’ve identified the problem: Microfinance is no longer sexy. It’s old news. It can’t deliver “impact,” and its effect on alleviating poverty was oversold and has underwhelmed. It’s well and good to offer working capital loans, but at the end of the day, the poor need education, health care, water for drinking and irrigation, roofs, and electricity together with a wide variety of financial services. It’s time for investors seeking real innovation to move on to the next big thing that will transform the lives of poor people and save our planet. Never mind microfinance’s decades-long track record of listening to the poor and underserved clients and effectively developing products and services based on their needs.

Of course, we issue these statements with considerable sarcasm. But, all joking aside, industry trends and shifting sentiments are presenting investors with a real question: Should they abandon the reliable and successful platforms and infrastructure that microfinance institutions (MFIs) have built? In turn, MFIs are saddled with the question of whether to stick to what they know best, or instead, to use their platforms to deliver expanded product offerings that increase access to other essential services.

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> Posted by Anna Kanze, Chief Operating Officer, Grassroots Capital Management

The initial public offering (IPO) of Chennai-based Equitas Holdings Ltd., the holding firm for the fifth-largest microlender in India, was very successful, raising nearly US$235 million (Rs 1,525 crore) and demonstrating the maturation of the microfinance and financial inclusion sectors in India.

When the stock opened on April 7 to the domestic market, the demand greatly exceeded the number of available shares (16x oversubscribed) and provided a strong exit (an average multiple of 3.6x) for Equitas’ shareholders, which included a mix of social and responsible investment funds and traditional private equity investors. The stock opened to international buyers on April 21 and closed with a price on the first day of trading 23 percent above the issue price.

Funds managed by Caspian Impact Investment Adviser (Caspian), an Indian investment management and advisory services company that invests capital in businesses delivering both financial and social value, were early investors in Equitas and active in its governance. (Another Caspian-­backed microfinance firm, Bengaluru-­based Ujjivan Financial Services Ltd., the fourth-largest microfinance lender in India by assets under management, raised approximately Rs 900 crore in an initial public offering that opened on April 28 and was nearly 41 times oversubscribed as of closing on May 2, 2016.) Given this market activity, we at Caspian and Grassroots Capital Management PBC, who work together closely on this and other investments, are prompted to take a closer look at what this IPO means for the company, its clients, and the industry.

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