New Delhi: Venture capital funding for urban microfinance received a big boost late last month when Lok Capital Llc., an India-focused private equity fund, announced a $1.25 million (about Rs5 crore) equity investment in New Delhi’s Satin Creditcare Network Ltd.
Satin, a non-banking finance company, started in 1990 mostly as a professional alternative to a moneylender for urban small business.
The investment in Satin was only the third by Lok Capital, which is at the heart of the Lok Group, also based in New Delhi. The group also provides grant financing to the fund’s clients through the not-for-profit Lok Foundation. It gets technical advice and due diligence for its investments from Lok Advisory Services Pvt. Ltd.
The foundation is headed by Rajiv Lall, also chief executive of Infrastructure Development Finance Co. Ltd and counts Donald Peck, the managing partner of Actis Capital Llc., (formerly CDC Capital Plc.) and senior Franklin Templeton executive Vijay Advani among its senior managers.
The fund started off with funding from CDC, a UK government-owned fund that invests public capital into private business in developing countries, International Finance Corp., Netherlands Development Finance Co., and German development bank KfW Entwicklungsbank.
The last investment round raised Lok’s capital to $22 million, bringing in funds from Accion International’s Gateway Microfinance Investment Vehicles Fund, Swiss funding agency ResponsAbility, and Développement International Desjardins, a Canadian community finance body.
“Now we are more confident about our ability to deliver venture support,” says Vishal Mehta, managing director, Lok Advisory. Starting out with a plan for 10 clients, and that too only start-ups, Mehta is now much more optimistic about the industry in India. “From $2 million a fund four-five years ago, the norm has now shifted to at least $10 million. Clearly, commercial return is what is driving the expansion. We will look at five more start-ups very soon,” he adds.
Lok Capital, which has a term of 10 years, started off with a $2.25 million investment in Hyderabad-based Spandana in 2006, and $400,000 in Bangalore’s urban microfinance institution Jana-lakshmi Financial Services, started by Ramesh Ramanathan, who runs a citizens movement group called Janaagraha. Ramanathan is a columnist with Mint.
New Delhi’s Satin gives loans from Rs10,000-50,000 to small businesses, ranging from general stores and telecom booths to beauty saloons and repair shops as well as low-income individuals such as domestic workers and vendors. With 20,000 active clients, it has lent Rs65 crore so far and has a repayment rate of 98%, thanks to a daily collection system.
“Many believe,” says Satin’s chairman and managing director H.P. Singh, “that the urban poor is more networked with banks than the rural poor. That is a myth.” The urban poor suffer the disadvantages of not having collateral or guarantors, he adds. The Lok money will help Satin branch into rural microfinance operations and expand into Uttar Pradesh, raising clientele to 85,000 by 2009 and total loans to up to Rs300 crore, says Singh.