An elusive private equity opportunity

If the Indian economy grows at more than 8% a year during the next decade, the domestic financial services industry will have to grow three times faster. India has a healthy savings rate of 37%, but has to find ways to aggregate and channel the resulting pools of capital into those businesses that can use them most productively. The country's targeted investment rate of 40% also assumes substantial foreign investment inflows.

These challenges present a tremendous opportunity for those who invest in financial services, whether in banking and insurance, consumer and personal finance, asset-backed lending or microfinance. Private equity and venture capital investors are viewing investments in these companies as an attractive entry point into...