News: Lok Capital to invest $12 m in microfinance

(BL 13/08/2006) New Delhi - Keeping in view the immense unrealised potential that exists in the microfinance sector, Lok Capital, a venture capital fund, plans to invest $12 million in the sector in India, with an emphasis on funding start-ups.

Lok Capital has raised funds from leading institutional investors, including the UK-based CDC, International Finance Corporation , FMO (Netherlands Development Finance Company) and KfW - Entwicklungsbank of Germany.

Striking the Right Deal

According to Vishal Mehta, General Manager of Lok Capital, the firm has about ten deals in the pipeline and will be closing its first deal very soon. "We will be encouraging entrepreneurs in this area. Out of the ten deals, five would be investments in start-ups, while three would be investments in smaller microfinance institutions. We are also looking to make a couple of larger investments in NBFCs, especially those which are diversifying into microfinance," he said.

Overall Lok Capital would be funding about 20-25 microfinance institutions (MFIs) over the next three to four years. The firm would spend around $2,00,000 to $7,00,000 per investment. Lok Capital is further looking to help provide product innovation on the delivery side, through other services such as insurance.

According to estimates, there are at present about 800-1,000 MFIs operating in the country. These are mostly concentrated around the four southern states. However, analysts point out that the number of MFIs may not be enough to meet the huge demand, as estimates indicate that currently only about 5 per cent of demand for credit is being met.

Ninety per cent of the MFIs are currently very small in size and are community centric.