Lok Capital, a microfinance venture capital fund focused on India, and the Dell Foundation, a charitable organization, have announced an investment in Arohan Financial Services Limited, a for-profit Indian microfinance institution (MFI). The size of the equity investment was not disclosed. Arohan offers microcredit and credit-linked insurance to urban women in Kolkata, and it plans to use the funds to expand operations to other urban centers in eastern India and to expand its product offering.
Shubhankar Sengupta, Arohan’s CEO, cited the Lok Capital and Dell Foundation investment as validation of Arohan’s for-profit model: “It…confirms the faith of the microfinance industry that this business can be financially sustainable, even while meeting the social objective of financial inclusion”. Geeta Goel, the head of the Dell Foundation’s Indian microfinance effort, also emphasized Arohan’s high operating standards in its decision to invest in Arohan: “we are particularly excited about Arohan’s commitment to understand and satisfy client requirements through appropriate product design and high levels of customer service, delivered in a cost-efficient manner”.
The investment by the Dell Foundation takes the form of a Program Related Investment (PRI), the legal term for a debt or equity investment made by a private foundation to a non-profit or for-profit organization with the chief purpose of advancing a social mission. The Dell Foundation has made previous PRIs in microfinance, including a USD 475,000 equity investment in for-profit Indian microfinance institution Ujjivan, which granted them a seat on Ujjivan’s board. The Dell Foundation has also made other equity investments to fund the creation of microfinance institutions; however, the majority of the Dell Foundation’s work is through grant funding for non-profits. MicroCapial has previously commented on the topic of PRIs in microfinance, including a PRI paper wrap-up and the role of PRIs in foundations, as well as the example of the Gates Foundation’s USD 29 million PRI to ProCredit.
According to the MIX Market, Arohan was founded in 2006. As of December 2007, Arohan had total assets of USD 795,580 and a total loan portfolio of USD 686,618 with 9,945 active borrowers. Arohan has stated its goal is to reach 400,000 clients by 2011. In June 2006, MicroCapital reported the Bellwether Microfinance Fund, made a debt and equity investment of USD 438,400 in Arohan. Arohan does not report a third party performance evaluation of operations to The MIX, the microfinance information clearinghouse.
Lok Capital is microfinance-focused venture capital fund founded in 2006. According to the MIX Market, As of March 2008 Lok Capital had total assets of USD 22 million, of which USD 3.9 million were allocated to microfinance investments. Lok Capital’s investors include institutional investors such as CDC, FMO, KfW, and the IFC, as well as microfinance-focused institutions such as ACCION International, responsAbility and Développement International Desjardins.
The Dell Foundation, established in 1999, has an endowment of over USD 1 billion. The Foundation focuses on the areas of urban education, childhood health and family economic stability/microfinance in the US, Africa and India. The Dell Foundation’s stated strategy in microfinance is to “in collaboration with other foundations and commercial banks, provide start-up capital to directly invest, through equity or grants, in scalable urban growth-oriented microfinance institutions to make a diverse range of financial services accessible”. For a list of MSDF grant recipients in the area of microfinance, please see here.
By Jocelyn Cheng, Research Assistant
Additional Resources:
Lok Capital Raises Fund Size to $22m With Investments from ACCION, responsAbility, Développement International Desjardins (DID). Business Standard, March 19 2008.
The Michael and Susan Dell Foundation
MicroCapital.org paper wrap-up, September 25 2007: Mission Investing in Microfinance: A Program Related Investment (PRI) Primer and Toolkit, by Jonathan C. Lewis and Robert A. Wexler
MicroCapital.org article, February 6 2007: The Gates Foundation Accelerates by Lending and Giving $29 Million to ProCredit Microfinance Banks in Angola, Democratic Republic of Congo (DRC), Ghana, Mozambique, and Sierra Leone
MicroCapital.org article, June 7 2006: Bellwether India-focused Private Equity Microfinance Fund Makes Second Investment of US$274,000 in Arohan Microfinance Services
MicroCapital.org article, July 24 2005: Program-Related Investments and Microfinance, Part 2
MicroCapital.org article, July 25 2005: Mr. Omidyar’s Philanthropic Vision: a Work in Progress, Part 1
The MIX Market profile for Arohan: http://www.mixmarket.org/en/demand/demand.show.profile.asp?token=&ett=2491
The MIX Market profile for Lok Capital: http://www.mixmarket.org/en/supply/supply.show.profile.asp?token=&ett=2128
Press Release: Michael and Susan Dell Foundation, Lok Capital invest in Kolkata micro finance firm
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