Venture Capital Funds for Microfinance in India

Microfinance is the provision of a broad range of financial services to poor and low-income households and their microenterprises (Asian Development Bank). Microfinance Institutions (MFIs) have, hence, traditionally been funded by developmental bodies such as the World Bank, United Nations, Asian Development Bank, or charities and NGOs. The underlying rationale for this is a perception / history of the lack of viability of these initiatives. The approach of funding agencies has been that of donors, and not investors. However, as its capital needs grow and the odds for making money improve along with philanthropy, the microfinance sector is increasingly turning to profit-motivated private investors. Investor attention to microfinance is an outcome of the fact that the Indian microfinance sector is reaching a higher level of visibility and recognition. The government has also identified the microfinance area as one of high priority. As a result of all this, private equity players, specially venture capital companies are beginning to evince an interest in investing in microfinance. While internationally there are institutions such as Unitus Private Equity and individuals such as eBay founder Pierre Omidyar who are setting aside funds for the sector, in India, Maharashtra government funded Urjankar, Delhi-based Lok Capital and the IFC-APIDC combine are forerunners in this initiative. Yet, there are issues of awareness, regulation and scale of economies that they face. The paper intends to examine the scope of venture capital investments in MFIs surviving, growing and prospering to the benefit of millions of underserved ‘bottom-of-the-pyramid' individuals in the Indian context