An F in Financial Inclusion

In a first of its kind survey, the Indian Council for Research on International Economic Relations (ICRIER) has released a study analyzing the level of financial inclusion currently in India relative to other nations. The results are unimpressive. The paper

ranks India at 29 in a list of 55 countries based on the country’s performance in banking penetration, availability of the banking services, and the usage of the banking system. India’s ranking goes down to 50 (out of 100 countries) if one removes the banking penetration as one of the determinants from the Index. This shows that even though there is a higher banking penetration, there are inefficiencies in making these services available to the financially excluded population. [Source: VC Circle]

We have written to this issue before. Particularly, I interviewed Gautum Ivatury of CGAP, and their efforts in addressing financial inclusion via mobile banking. This study is interesting because it highlights how building a bank is only part of the process. The drop in rankings when controlled for banking penetration emphasizes this need.

Due to this interesting dynamic, there is a definite need for innovative and unconventional methods to reach these otherwise excluded communities. Technological approaches like kiosks and mobile phones are one angle, but I also have an inkling that much of it stems from being uninformed or even skeptical of modern institutions.

TC-I FundWatch

Editor’s note: In order to more quickly provide our readers with pertinent information, ThinkChange India has created TC-I FundWatch, a regular post that summarizes important investments made by social and traditional venture capital firms that directly affect the lives of India’s poor. This way, on Tuesdays, our readers will be able to get a regular update on the financial activity in this fast moving space.

Social

  • Unitus, a nonprofit focused on accelerating access to microfinance that operates in India in addition to other countries, has received a USD 9 million grant from the Omidyar Network. This is the largest grant to date. [Source: Microcapital.org]
  • Bharat Integrated Social Welfare Agency (BISWA) has sold USD 5.9 million of its agricultural assets, otherwise known as agri assets to private banks — another example of the growing trend of MFIs securitizing their loans for capital infusions. Grameen Capital India (GCI) was responsible for securing the deal. [Source: Microcapital.org]

Traditional

  • Rabobank, a Dutch financial institution, will establish a $100 million private equity fund in India focused on small and medium size enterprises (SMEs) in the agriculture value chain. [Source: VC Circle]
  • Lighthouse Funds is launching their 2020 Opportunity Fund — a $100 million that will focus on investing in fast growing small and medium size enterprises (SMEs). [Source: VC Cirlce].

Acumen and Hindustan Latex to provide country with micro-hospitals

In a joint venture, Acumen Fund and Hindustan Latex will begin the development of hospitals with 25-30 bed capacities throughout India to help address the dearth of low income maternal and child healthcare services.

To be labeled LifeSpring Hospitals, the venture will build upon the success of the phase I hospitals established since 2005 that have yet to experience a single mortality. According to VC Circle, he new funding will help the organization scale up to 140 similar centers by 2012.

Acumen’s initial $2 million equity investment in the new company, a 50/50 equity partnership between Acumen and HLL, will support LifeSpring’s plan to open five hospitals in 2008 and thirty across India by the end of 2010. LifeSpring charges between 30-50 per cent of the prevailing market rates. With 80 per cent of all health care expenditures in India out-of-pocket, LifeSpring aims to significantly lessen the burden of rising health costs to low-income communities.

While numerically the effects of such a venture may not seem substantial in relation to the need, if successful it will demonstrate a scalable and viable funding model for future services.

Leapfrogging into Renewables: Moser Baer taking the lead

As the Indian economy continues to grow at a scorching pace, folks everywhere are worried about the country’s energy needs. India’s thirst for resources, especially oil, is going to create a tough economic challenge in the coming years. In addition, the burden of climate change is also getting shifted to the shoulders of developing giants like India and China, as major emitters of greenhouse gases.

India for a while has taken a lead on renewable sources. However, in recent times Indian companies have started seeing exciting opportunities in renewables and greentech. Turns our India has the fourth largest installed wind power capacity in the world (source). India has already leapfrogged the west in telecom – where mobile phones networks now connect the nook and corner of the country. Clearly, renewables like solar and wind energy offer another such opportunity. Indian companies need to start investing in various parts of the renewables value chain.

One such great example is Moser Baer’s leap in the photo-voltaic space. Reuters reports that the solar division of the optical disk maker is waiting to go public (through VC Circle)

The solar energy arm of optical storage disc maker Moser Baer is looking for a initial public offer (IPO) in Nasdaq, according to a Reuters report. Morgan Stanley is probably one of the underwriters appointed by Moser Baer Photo Voltaic (MBPV), which manufactures solar cells and modules, for the proposed IPO.

April 4th — VC Circle Growth Capital Forum

Slated to be held in Pune, this conference intends to be a meetup of many if not all of the major VC firms in India. The conference is held in Pune in order to focus on startups and ventures happening outside the borders of the major cities like Mumbai or Delhi.

Why a VC/PE event in a city like Pune? We believe the India growth story lies not just in Delhi and Mumbai, but in other regions too. Pune, for instance, is known for companies from thriving sectors like Engineering, IT&ITES, Education, Specialty Retail, Food Processing & Agro-based Industries, and Biotech. VC Circle believes that investors need to go where companies are. And they are indeed doing it.

Here is the info for the conference, and a list of confirmed speakers can be found after the jump:

Venue: Le Meridien, Pune
Date: April 4, 2008
Time: 10.30 am-5.30 pm
Registration fee per attendant: Rs 3,000 inclusive of all taxes.

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Organic farming company gets VC backing

From VC Circle:

This could be the first venture capital investment in an organic farming business. Mumbai-based venture capital firm Nexus India Capital has made an undisclosed investment in organic farming company Suminter India Organics Pvt. Ltd.

This is an interesting investment as one does not normally associate VC funding with farming. Suminter, however, attracted the investors due to its scalability. The company actually pays its contract farmers a surplus over market prices for their goods, centralizes it and then exports it to other parts of the world.

The company works on a buy-back arrangement, in which it pays farmers a premium, typically 10-15 per cent, over the market price. The harvest is processed and packaged at a central unit and then shipped overseas. It exports directly to the US and through a Netherlands-based subsidiary to Europe. The funding will be used to expand its reach to 10 Indian states.

Middle of the Pyramid Real Estate

Millenum Spire, a global real estate company, is raising a $1 billion dollar fund that will focus on providing low-cost entry housing to the emerging Indian middle class. According to Ashish Bhalla (from VC Circle), who is a managing director along with his brother Abhijeet, this area of the market has largely been ignored by the real estate investment community.

Our investment philosophy is to concentrate on core fundamentals. We will target lower entry cost cities that will benefit from Knowledge and industrial sector growth, and infrastructure by the government. It has to work in sync with an ecosystem of a civic, social and real estate infrastructure. But, the planning policies are myopic in India. There is no centralised, compiled database for land records available, a lack of which ultimately makes the cost of the land expensive. Because you just don’t know the availability of water, roads and other infrastructural facilities around that area. It needs to be professionalised.

A lot of real estate development that is happening today in India is primarily keeping in mind the investor and not the end user. We want to create asset bases, which give people their value for money. We aim to address the “middle of the pyramid” class of people. We are not looking at a super premium, mega luxury kind of accommodations, but targeting the emerging middle class, who looks for affordable, comfortable housing, and the value for his money in return.

The entire interview can be found here.