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B. Equity Investments by the Venture Capital Funds One of the more encouraging developments in the sector in the last couple of years has been the arrival on the scene of several venture capital funds, one of them registered in India and several others offshore. Between them they have greatly eased the immediate equity constraint facing start-ups and emerging MFIs, and indeed have created temporarily almost a "buyer's market", with MFIs now being in a position to shop around for the best deals. However this situation is unlikely to last One of the more encouraging developments in the sector in the last couple of years has been the arrival on the scene of several venture capital funds, one of them registered in India and several others offshore. Between them they have greatly eased the immediate equity constraint facing start-ups and emerging MFIs, and indeed have created temporarily almost a "buyer's market", with MFIs now being in a position to shop around for the best deals. However this situation is unlikely to last, as the medium and longer term equity requirements of the sector are considerable. While M-CRIL (2006) estimates the current equity deficit of sample MFIs is only Rs 23 crore, their total equity fund requirement will grow to about Rs 1,100 crore by 2010, based on their growth rate of 146 per cent from April 2003 to March 2005. 1 The new generation of equity investors While equity investments in the handful of larger better known MFIs have been taking place for some time, 2 there were no specialized on-shore venture capital funds, or offshore venture capital funds dedicated to Indian MFIs, until the arrival of the present crop of VCFs. Equity investments were part of the charter of SIDBI Foundation for Micro Credit (SFMC), but this component of its activities met with far less success than some others, such as capacity building. Bellwether was the first fund to commence activities with an Indian registration, in 2005, and was followed by two other offshore funds, Lok Capital and Unitus Equity Fund. Taken together the size of their funds is presently $31 million. A fourth fund, Aavishkar- Goodwell, is in the process of raising capital. The Bangalore-based Michael and Susan Dell Foundation (MSDF) is not a fund but has already made one equity investment in partnership with Bellwether, and has provided donated equity to a non-profit Section 25 company. Grameen Capital India, was recently set up to provide investment and advisory services, including equity and quasi-equity investment products. 3 In the public sector, finally, the corpus of NABARD's MFDEF (Microfinance Development & Equity Fund) was increased in the Budget for 2005-06 from Rs 100 to Rs 200 crore, and equity was added to its charter. Finally, one of the largest investors has in fact been an individual, a high net worth US-based Indian, Mr Vinod Khosla 4 . Table 7.3 describes the main features of the three funds that are already operational as well as MSDF. Bellwether has been quick to take advantage of the first mover advantage. The diagram shows how Bellwether sees the contribution of its products to different segments of the market. 124
Equity Investments by the Venture Capital Funds Table 7.3 Salient features of the main equity investors Bellwether Lok Capital Unitus Michael and Susan Dell Foundation Indian/Offshore Indian Offshore Offshore Offshore Size at first closing $10 million (could grow to $20 million) $12 million $12 million A foundation, with an endowment of more than $1 billion, which also makes equity investments Life of fund 15 years 10 years, extendable to 14 7 years NA Main investors Individual and institutional (Hivos Triodos and Gray Ghost) Institutional (IFC, KfW, CDC, FMO) Mixed NA Investees so far (in India) 7 of which equity (3), convertible debt (2) and debt (2) Fund closed in June 2006 2 equity and 5 capacity building partners 1 equity investment, 1 grant of donated equity to an S 25 MFI Pipeline 3 existing NGO-MFIs, 2 start-ups Expects 10 equity partners by Sept 2007 5 existing MFIs, 3 start-ups. Expects 3-4 equity partners by Q2 of 2007 By end of 2007, 15 partnership of which 5-6 equity. Goal of Unitus-ACCION Alliance for India, coverage of 15 million clients within 10 years 4 or 5 partnerships this year, of which about half non-profits Coverage goals By year 5, aims to successfully transform 7 MFIs, of which at least 3 will be start-ups. Expects 40 per cent of investments to be outside southern states, and a ruralurban balance. 20 investments in all, in partners of different types and stages of growth, through various instruments Provides capacity building support and branches Same as above every year Arrangements for TA Will access grants for partners from other sources Lok Foundation, the promoter, raising $2-3 million for long-term TA grants to investee MFIs Partners must offer clear prospects of rapid growth of client outreach As a foundation has considerable grant money Emphases and special features Apart from social returns, investees must offer clear prospects of attractive returns on equity. As with Bellwether, but prefers longer-term investments in MFIs of 6-8 years, and use of off-balance sheets models such as the Service Company model Focuses exclusively on urban microfinance. Regards both financial and social performance goals as best achieved through partners with aggressive growth plans, and willing to assist non-profits to make them attractive candidates for other investors 125
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Microfinance in India A State of th
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List of Tables Page No Table 2.1 Gr
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Preface and Acknowledgements This r
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Abbreviations ABC ADB BC BF CAR CAG
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CHAPTER 1 Overview and Summary of M
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Overview and Summary of Main Recomm
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1 1a 1b 2 2a 2b 2c 3 3a 3b 3c 4 4a
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The Light and Shades Study A major
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highest proportion of weak records
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their profitability after accountin
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allow the programme to grow organic
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1.0 1.1 1.2 1.3 1.4 1.5 1.6 1.7 1.8
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Endnotes 1 It is very hard to compa
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as cash with the groups, the true r
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linkages", 11 percent 3rd, and 5 pe
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References APMAS (AP Mahila Abhivru
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CHAPTER 3 Progress Under the MFI Mo
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Progress Under the MFI Model is fun
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Table 3.4 Comparative performance i
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Progress Under the MFI Model on lit
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Progress Under the MFI Model 4 Howe
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Progress Under the MFI Model Refere
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MFIs, and the need for MFIs to plou
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size had actually come down during
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The point at which peer group press
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The lack of contact and communicati
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Box 4.1 Continued 4. MFIs will coll
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Endnotes 1 There will be many disag
Page 76 and 77: 19 The base suicide rate in AP is 1
Page 78 and 79: References APMAS, 2005, "A Report o
Page 80 and 81: (such as cattle and houses), and co
Page 82 and 83: The advantage of the provider model
Page 84 and 85: Some lessons learnt from experience
Page 86 and 87: Box 5.2 VimoSEWA: Synergies between
Page 88 and 89: 86 Table 5.1 Main Feature of Health
Page 90 and 91: Endnotes 1 While the microinsurance
Page 92 and 93: 16 A little less than a fifth of th
Page 94 and 95: 29 The rationale for transfer progr
Page 96 and 97: Roth, James and Vijay Athreye, 2005
Page 98 and 99: Issues and priorities for action re
Page 100 and 101: Endnotes 1 See for instance CGAP (2
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Page 104 and 105: such as Chaitanya who soon became s
Page 106 and 107: money to support operational expens
Page 108 and 109: finance, and the microfinancial ski
Page 110 and 111: Box 6.1 Continued in experts and to
Page 112 and 113: Endnotes 1 In a sense it always was
Page 114 and 115: 16 Examples are Margdarshak in Luck
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Page 118 and 119: Table 7:1 Commercial bank exposure
Page 120 and 121: The main constraints to the expansi
Page 122 and 123: further review, RBI has modified th
Page 124 and 125: 9 Thus ICICI has sold some of its b
Page 128 and 129: Figure : The Bellwether triangle Lo
Page 130 and 131: Despite the weaknesses the public s
Page 132 and 133: Box 7.1 Continued foreign sources o
Page 134 and 135: Endnotes 1 At this point they will
Page 136 and 137: References ACCION, 2003, "The Servi
Page 138 and 139: SIDBI Foundation for Micro Credit (
Page 140 and 141: categories, depending on the amount
Page 142 and 143: The distribution of total disbursem
Page 144 and 145: Endnotes 1 It should be noted that
Page 146 and 147: B. Donor Participation in Indian Mi
Page 148 and 149: this has dropped to 8% on the curre
Page 150 and 151: and poor populations. More directly
Page 152 and 153: and expansion of available retailer
Page 154 and 155: 11 SDC through various programs for
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Page 158 and 159: 1.1 Impact evaluation of Spandana's
Page 160 and 161: in the loan tenure of 24 months. Th
Page 162 and 163: There are two main motivations of a
Page 164 and 165: compensation structures used by Ind
Page 166 and 167: Endnotes 1 By Annie Duflo, Anvesha
Page 168 and 169: 29 The main components of direct tr
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