Vinod Khosla has a formidable reputation in the venture world. However, microfinance is a long way from the world of venture capital. “Microfinance is one of the most important economic phenomenon in the world in the last fifty years,” says Khosla. During his visit to India earlier this year, Khosla listened to rural women recount how the tiny loans they received from a microfinance program helped them start homegrown businesses, transformed their poverty-stricken lives and made better education possible for their children.

But what really matters is whether such programs are profitable? And the answer is a clear Yes. In India, microloans are usually disbursed to poor women whose total family assets are under $445 and whose monthly income is smaller than $7.88. Yet microfinance initiatives have a phenomenal repayment rate averaging more than 95 percent, better than the best commercial banks in the world.

A successful, high-profile venture capitalist with hundreds of millions of dollars in personal wealth devoting attention to microfinance initiatives is invigorating for the fledgling industry. Khosla’s evangelism for the microcredit initiatives not only advocates hope but will also help such programs gain greater support from mainstream institutions.
The majority of the microfinance initiatives struggle to find grant financing and stay in business. The financing they do receive is often in small grants of $5,000 to $50,000. The ventures are often viewed as risky propositions for loans.
“The growth of microfinance in India has been severely constrained due to inadequacy in capacity building. There are over 1000 organizations like non-governmental organizations, institutions and banks, which operate on microfinance. Most of these organizations do not have access to high quality training which is an essential component for capacity building,” observes Ela Bhatt, founder, SEWA.

To fill this gap, the Indian School of Microfinance has been established in Ahmedabad. The school, jointly founded in Ahmedabad by SEWA Bank, Friends of Women’s World Banking and the Coady International Institute of Canada. The school itself, which is the first ever institution in the world to be set up outside the U.S, will cater to the needs of microfinance practitioners like non governmental organizations, microfinance institutions, bankers and policy makers in the area of financial education and equip them with the requisite skills, knowledge and expertise to build, manage and monitor sustainable microfinance programmes and organizations.

Recently Citigroup India announced a grant $3.5 million to the Indian School of Microfinance. Significantly, this is the first multi-million dollar grant given by Citigroup outside the U.S for any single community project.
In India, Citigroup has identified micro credit as a key driver for social empowerment and sustainable development since 1997. The bank has partnered many NGOs in the areas of microfinance through grant funding, employee volunteerism, cause-related marketing and best practices sharing.
Some microfinance projects are tapping into commercial financial institutions. In India, the Grameen Foundation is starting a company called Grameen Capital India in partnership with Citigroup and India’s leading ICICI Bank to help microfinance initiatives get guarantees for financing.

Going forward, we will see a ground swell of support coming from not only the leaders in the high-tech and venture capital worlds but also from commercial financial institutions.