Sahayata Micro: Dutch Money Down The Ditch

What happens when you follow a crowded trade?

In the context of India preparing to start a sovereign fund, pension fund reforms and in essence setting our governance structures essentially the same as the western ones, here’s a micro news through which I’d like to connect to the larger picture.

Caspian Advisors, the investors in Sahayata Microfinance have suspended the management, including the MD following concerns on it’s portfolio performance.

How bad:

Its 90 days past due (including write-offs) as a percentage of its loan portfolio deteriorated materially to 4.71 per cent as on March 31, 2011, compared to 0.48 per cent as on March 31, 2010. And Sahayata reported a net loss of Rs.49 million for 2010-11 compared to a net profit of Rs.52 million for 2009-10.

Sahayata has been unable to raise any material amount of fresh funding through bank lines (except for Rs.190 million NCDs raised through Developing World Markets in April 2011) since the promulgation of the Andhra Pradesh ordinance in October 2011.

An equity infusion of Rs.250 MM from its existing investors was expected by the end of 2010-11, but that didn’t happen.

The lack of adequate (credit card type rural adrenaline enhancing bad capital) has led to the shrinking of Sahayata’s loan portfolio to around Rs.800 MM as of mid-October 2011 compared to Rs.1260 MM as on March 31, 2011.

Affects whom?

Caspian Advisors is an investment management and advisory services company based in Hyderabad, India that has been focused on managing investment funds in the microfinance space since 2005. Caspian's Funds - Bellwether Microfinance Fund and India Financial Inclusion Fund - serve as vehicles through which funds are strategically utilized to enable financial inclusion in sustainable, scalable and innovative ways.

And..

Caspian Advisors is also the preferred regional partner of Grassroots Capital - a microfinance-focused investment firm that seeks to invest, either directly or indirectly, in MFIs across the globe with an aim of delivering double bottom-line returns.

And who is grassroots..

Grassroots Capital runs total assets of $160m across two funds, the first-generation Gray Ghost Microfinance Fund and the latest Global Microfinance Equity Fund that PGGM is anchoring. Grassroots has established equity relationships with nearly 50 microfinance institutions in over 24 countries.

And where does Grassroot’s money come from?

In 2009, PGGM, the €75bn Dutch pension fund asset manager made a cornerstone investment of up to $60m (€43m) in a global microfinance equity fund run by Grassroots Capital, the New York, London and Hyderabad-based manager, as part of a massive €200m programme announced in 2008. Incidentally Dutch central bank announced a loss of $39 Bn related to 2008 Crisis.

The two largest Dutch pension fund managers, ABP and PGGM have been amongst the world’s most active pension investors in microfinance. ABP and its US peer TIAA-CREF, the higher education and medical workers fund, were named amongst investors in a $125m fund close by Catalyst Microfinance Investors (CMI) in 2008.

Are the dutch Greedy or Gullible?

Nothing to say.

How can I extend one case to all?

Who wants a statistical report on MFIs to draw conclusions? One more question, I beg, is to what use the grassroots, impoverished people of our poor hungry and developing nation, put the mircro capital, that gives a return on equity more than 25% to pay for these micro loans and still come up as (now de-impoverished) winners. To see the reality of this case, you'll have to visit rural heartlands and find out how much money went into paying dowry.

My point is, this Production (of currency notes), distribution through wholesalers (Grassroots), Super Retailer (Caspian) and micro-retailer (Sahayata) is just a carry trade by bankrupt economies, that would serve a better purpose being deployed in their own crisis ridden bankrupt financial system.