I've just arrived in Calcutta for the first time, or Kolkata, as it is now called in India.
It's a bit drab, dirty and old but the streets below are all lit up with glowing bulbs and the arches and doorways of churches and temples are decked out in flowers, all for the festival season, and specifically, West Bengal's celebration of the "Durga Puja" this weekend.
I've already managed to make a local friend, a 20 year-old business school student who split a cab with me to Sudder Street, the divey, foreigner/hippy/culturalist refuge at the northern end of Chowringhee Street. The guy I met was fluent in English, Hindi, Bengali and Nepali (or so he said) and was thrilled to meet a foreigner who actually liked India. I guess they don't get many in this corner of the country.
I'll explore this old colonial capitol tomorrow...and will definitely check into a better hotel...
On Tuesday I linked to a story that suggested that Blackstone and Carlyle, two of the world's most renowned and powerful Private Equity firms, were interested in making an investment in the microfinance space.
I have a mixed feeling about this kind of news. Not because I have issues with capitalism, like many of the social activists who work in microfinance, nor because I have a thing against private equity funds, like a few politicians in Washington D.C., but rather because I don't think these investment opportunities, the SKS's, the Spandana's, SHARE's, Bandhan's and Ujjivan's of India, are really private equity deals.
These are venture deals, and they deserve venture money, and with that money a venture perspective - the freedom to explore different products and services, different business models and even a bit of social services work or livelihoods training if these activities actually strengthen microfinance clients' purchasing profile and borrowing capacity in the long-run.
I have a fear, as I mentioned in another Op-Ed in MINT on Monday, that private equity money will bring a myopic management focus on portfolio growth and short-term profitability, with investment horizons hovering in the 2-3 year range, instead of 4-6 years. This is the kind of pressure which prompts CEO's to start satisfying their investors first, and their clients only afterwards. I believe that would be the wrong recipe for real, long-term value creation.
A short-term view would probably entail stripping down any ancillary activities the MFI is involved in (i.e. cutting spend on product and service development) and unnecessarily focusing on maintaining the same rapid portfolio growth we have seen in the last 2 years, irrespective of whether the new regions being tackled by MFIs can support those levels of growth while maintaining portfolio quality (repayments).
I believe venture investors, broadly, have greater comfort with longer investment horizons and larger spend on research and development which allows product innovation. Ultimately, I think these things allow MFIs to end up with more satisfied, "sticky-er," and in the case of microfinance, potentially better-off client. Clients, employees, founders, and management have to come first. Only when those people have been well-served do the investors deserve their share. As Sequoia Capital suggests on its own website, that is the only way, there are no shortcuts.


























