MICROCAPITAL STORY: International Finance Corporation (IFC), Bharatiya Yuva Shakti Trust (BYST), & VenturEast Micro Equity Managers Private Limited (VMEM) to Launch 5 Million USD Micro Venture Capital Fund For Young Entrepreneurs

International Finance Corporation (IFC), a member of the World Bank Group, has joined forces with Bharatiya Yuva Shakti Trust (BYST), an organization that focuses on “mentoring” as a technique to help young entrepreneurs in India, and venture capital firm VenturEast Micro Equity Managers Private Limited (VMEM) to set up a fund that will provide financing to young Indian business persons with growth potential but limited resources. It will target in particular India’s disadvantaged entrepreneurs between 18-35 years, who are considered too high risk for debt financing and thus require equity injections.

According to a report from Reuters India, the collaborative account, which will be managed by VMEM, is targeting a final close of 5 million USD. It has already mobilized 2 million USD from other institutions, including the Small Industries Development Organization and Industrial Development Bank of India (IDBI), with initial support of 700,000 USD from IFC.

BYST has entered into a memorandum of understanding with VMEM. VMEM will execute all management functions including both identification and placement of investments. It will also inculcate financial discipline, improve systems within enterprises, as well as enable entrepreneurs to face future organizational and market challenges.

Anil Sinha, General Manager of IFC Advisory Services, commented that the initiative aligns well with IFC’s strategy to help create opportunities for inclusive development. “This is India’s first micro equity initiative to finance socially disadvantaged entrepreneurs,” remarked Sinha. Meanwhile, VMEM’s Mr. Sarath Naru expressed similar sentiments, “the key to managing the fund successfully lies in balancing the concerns of multiple investors and partners while ensuring important social impacts at the grassroots level.” Finally, Lakshmi V. Venkatesan, BYST’s Executive Vice President and Founding Trustee, added that the fund may also help, “develop a model that can be replicated across India, which has a large segment of the world’s unemployed youth.”

BYST, launched in 1992 by HRH Prince Charles and the late industrialist J.R.D. Tata, now operates in six regions throughout India and works with disadvantaged Indian youth. BYST since its inception has assisted this demographic in transforming business ideas into viable enterprises under the guidance of a mentor, with a core goal being to make job creators out of mere job seekers. In this vein, BYST has financed and advised over 1,500 entrepreneurs creating employment directly and indirectly for 15,000 people.

Presently, an important objective for BYST is to create a more sizable growth fund with institutionalized avenues tying BYST directly to recipients of resources, through such means as long term equity ownership and royalties on sales and profits. Consequently, International Finance Corporation has backed a current project to identify and pull together potential sources of funding for BYST entrepreneurs who have crossed the threshold of successfully running a venture but cannot yet access formal finance, with the caveat that any plan should be scalable to serve a large number of persons. In theory, in the long term the growth fund will lead to mainstreaming of these entrepreneurs, whereby they can eventually become legitimate clients of the commercial banking system or larger venture capital funds.

IFC, a member of the World Bank Group, aims to foster sustainable economic growth in developing countries by supporting private sector development, mobilizing private capital, and providing advisory and risk mitigation services to businesses and governments. According to the organization’s 2008 Annual Report (p.12), IFC made investments of 16.2 billion USD in fiscal year 2008, a 34 percent increase over the previous accounting period.

In December, 2008, MicroCapital reported that IFC signed an agreement with Jordan to support the Middle Eastern country’s efforts to establish a legal framework for credit bureaus, institutions that will help individuals and smaller businesses access finance, in an attempt to bolster the overall economy. In another article, MicroCapital reported on IFC’s efforts to support the expansion of Colombia’s Corporacion Mundial de la Mujer Medellin (WWB-Medellin).

By Yanni Hao, Research Assistant

Additional Resources:

Bharatiya Yuva Shakti Trust: “Home

International Finance Corporation: “Home” “2008 Annual Report

Industrial Development Bank of India: “Home

MICROCAPITAL STORY, December 16, 2008, “NEWS WIRE: Jordan: International Finance Corporation (IFC) to Help Jordan Introduce Credit Bureau Legislation, Support Smaller Businesses

MICROCAPITAL STORY, December 2, 2008, “MICROCAPITAL STORY: International Finance Corporation (IFC) Provides $2.1m to Corporacion Mundial de la Mujer de Medellin (WWB Medellin)

Reuters India: “Home” “IFC, BYST & VenturEast to launch a $5 mln Micro VC Fund

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