CDC, the UK’s development finance institution, has made a USD10m investment in Lok Capital II, a commercial microfinance fund that supports businesses across India.
CDC is an anchor investor in the fund and has helped Lok Capital II attract a total of USD52m at the first close of its fundraising.
Lok Capital II aims to raise a total of USD80m for onward investment in a range of new and established Indian microfinance institutions and businesses, which in turn provide financial services, healthcare and education to low income entrepreneurs and micro-businesses.
Lok Capital II will make long-term equity investments in microfinance companies in India such as smaller banks, non-bank financial institutions and commercially oriented non-governmental organisations that serve micro and small business customers.
As well as financial backing, Lok Capital II will provide the microfinance institutions with advice to help them cut risks and expand the products and services they provide to their customers.
Lok Capital II, which is sponsored by the Lok Foundation, a New York-based not for profit organisation, has also received investment from the International Finance Corporation and European development finance bodies.
Lok’s first fund, Lok Fund I, was the first microfinance institutions-focused private equity fund in India to attract foreign investment.
CDC’s microfinance investment manager Hiti Singh says: “The microfinance industry serves over 25 million poor borrowers across India and CDC is keen to support its success. Our commitment to Lok Capital II will mean greater funding for microfinance institutions and more financial services for people in some of the poorest areas of the country.
“Today’s announcement takes CDC’s overall investment in microfinance funds to over USD120m since 2003. As the private investment arm of the UK government, we are well aware that increasing the range of financial services to the poor is essential for economic growth in the world’s developing countries.”
Venky Natarajan, managing director of Lok Advisory Services, says: “CDC has added tremendous value to the microfinance sector in India and to the evolution of the Lok Capital group. CDC brings in the right social and commercial balance and has shown deep faith in developing the businesses focusing on the bottom of the pyramid over the past few years.”
Estimates putting the current annual microcredit demand in India at around USD22bn from 245 million low-income families, but the supply from microfinance institutions was only about USD7bn last year. Typical microfinance loans average between USD200 and USD250, but the formal credit system has not been able to reach low-income, poorly educated, small-scale borrowers adequately.
CDC’s ten-year commitment is the largest from any investor in the fund.
