IFC to set up micro equity fund

Wednesday, November 16, 2005

International Finance Corporation (IFC) is all set to enter the microfinance market in India. The global lending body together with Andhra Pradesh Industrial Development Corporation Venture Capital and Bharat Yuvak Shakti Trust (BYST) are planning to set up a micro equity fund to help small entrepreneurs.

?The fund, to be set up with an initial corpus of $5 million (Rs 22.5 crore), would begin operations by April 2006,? said Vipul Prakash, regional manager, South Asia, IFC.

?In micro equity financing, a capital starting from Rs 5 lakh up to Rs 50 lakh would be provided to start-ups. Unlike micro credit, there will, however, be no fixed deadline for loan repayment, no guarantee against loan, and no interest charged. The repayment will be purely based on the success of the venture. If the venture runs into losses, there is no need to repay, and is at risk of the fund,? said Sarath Naru, managing director, APIDC Venture Capital. ?Nevertheless, if the venture succeeds, the repayment will be high, on the basis of a pre-decided agreement. The repayment could also be on the basis of royalty on sales,? said Naru.

In case the venture falls into any kind of political or legal trouble, as an equity partner, the fund will take responsibility of the venture. The equity, however, cannot be sold to a third party, he added.

BYST is a trust sponsored by the Confederation of Indian Industry. ?There are a lot of potential small entrepreneurs in the country who turn away from venturing in a business owing to fear of loans and interest payment to banks. This fund is for such individuals,? said Naru.

BYST, on its own, has helped several small players grow into full time entrepreneurs. The prime examples are of a Hyderabad-based snacks maker, who is now making a turnover of Rs 70 lakh from an initial investment of Rs 25,000 provided by the trust. Similarly, a tailor in Hyderabad is clocking business of Rs 1 crore against an initial investment of Rs 25,000.

Source: Business Standard (link opens in a new window)