Lok Capital, a venture capital firm focused on the bottom of the pyramid (BoP) market, has made a first close of $52 million for its second fund. CDC Group, the UK government-backed fund of funds, has joined in as the backer with a $10-million investment in Lok Capital II. The fund, which focuses on microfinance besides other BoP opportunities, is targeting $80 million.
CDC said, in a statement, that it is an anchor investor and its 10-year commitment is the largest from any investor in the fund. International Finance Corporation, the private investment arm of the World Bank, had said it plans to invest up to $15 million in the fund. The fund has also received commitments from European development finance bodies.
Lok Capital II is sponsored by the Lok Foundation, a New York-based not for profit organisation whose directors include IDFC MD & CEO Rajiv Lall and former Actis South Asia head Donald Peck.
Lok Fund I, which raised $22 million, is said to be the first MFI-focused private equity fund in India to attract foreign investment. The first funds investors included Accion, Developpement International Desjardins, FMO, KfW. Lok's investments include MFIs like Asirvad Microfinance Pvt Ltd, Spandana Sphoorty Financial Ltd, Basix and Ujjivan.
“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 $120 million 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," said CDC’s Microfinance Investment Manager Hiti Singh.
CDC Group has backed MFI-focused funds like India Financial Inclusion Fund, ShoreCap Management, Catalyst Microfinance Investors, among others.
"India’s microfinance industry has huge potential with estimates putting the current annual microcredit demand in the country at around $22 billion from 245 million low-income families, but the supply from microfinance institutions was only about $7 billion last year. Typical microfinance loans average between $200 and $250, but the formal credit system has not been able to reach low-income, poorly educated, small-scale borrowers adequately," said Venky Natarajan, Managing Director, Lok Advisory Services.
Several MFI-focused fund managers have started raising their second vehicles as the attractive returns in the sector bring more commitments from global investors. Elevar has already raised its second fund at $70 million earlier this year. Aavishkaar Management is currently raising its second microfinance focused fund, Aavishkaar Goodwell II, targeting $100 million. Belgium-based Incofin Investment Management is also raising $139 million for its second fund.