Speaking on the occasion, Mr. Vineet Rai, Managing Director of Aavishkaar Venture Management Services said “We have always been wary of seeking credit for the work done by other agencies including the entrepreneurs we support, as their leadership and vision far outweigh our contribution in building the impact that their businesses make. We believe that social entrepreneurs and impact investing have a role to play in addressing poverty reduction, but it is difficult, if not impossible, to arrive at a direct relationship between impact investing and poverty alleviation till more work has been done in this space”

The report covers impact of Aavishkaar India Micro Venture Capital Fund’s investment portfolio. It combines quantitative data with real stories on ground in an earnest attempt to capture and share with readers, some of the benefits that Aavishkaar’s investments have been generating for disadvantaged communities all over the country.

Download Report

Money for something: P Erusammal, 65, collects her NREGS wages

There is a child-like wonder in 65-year-old P Erusammal’s face as she walks into the ATM with her swipe card in Periyakankanakuppam village of Cuddalore district, about 190 km from Chennai. As an NREGS (National Rural Employment Guarantee Scheme) worker, she clears mud and silt from a river canal, and has come to collect her wages (Rs 80 per day). Previously, she used to collect it from the village panchayat. Now, she presses her thumb on the biometric slot on the ATM machine—”cash box”, she calls it—and simply collects her money. In Periyakankanakuppam, NREGS wages are released on a weekly basis, and on the big day, about 40-50 villagers throng this ATM.

Until now, ATMs belonged to cities. For banks, it was unviable to set them up in remote rural areas, even as there was a growing need with the advent of micro and rural credits. In 2004, a few of them, led by ICICI Bank, approached the Telecommunications and Computer Networks group (TeNeT) at IIT Madras for technology solutions that could speed their rural forays.

TeNeT has a history of incubating technology start-ups focussed on the development of telecom and banking products for villages. Professor Ashok Jhunjunwala, Head of TeNeT, fell back on his fellow IITian L Kannan, Founder of Vortex Engineering, a Chennai-based technology solutions company. Together, they came up with the idea of what is today known as Gramateller—a low-cost ATM, the cheapest of its kind in the country. Vortex installed its first low-cost ATM in 2008, in Chennai.

Poor man’s ATM

The Gramateller costs Rs 1.75 lakh. That’s at least one-fourth the cost of a conventional ATM (Rs 8-10 lakh). According to Kannan, three factors, roughly in equal measure, helped Vortex drop the ATM bar. One, a novel cash dispenser module, which brought in savings on the power usage and design fronts. Two, the way the machine shell is made. Three, the company uses an embedded process system, which runs on Linux instead of Windows XP, and again brings down the operational cost.

The cash dispenser module, which it has patented, is the revelation. In a conventional ATM, the cassette, where the money is stored, is kept horizontally; in a Gramateller, it is kept vertically. Says Vijay Babu, Chief Executive Officer, Vortex: “The note travels 15-20 cm as compared to a metre-plus area in other ATMs. This reduces the power cost by one-tenth and the design cost by one-fourth. Its vertical placement means it is assisted by gravity too.”

Pricing power: Vijay Babu (left) and L Kannan of Vortex with one of their ATMs. They expect to sell 50 ATMs this year, 500 next year

The Gramateller is also more energy efficient than its conventional peers. The conventional ATM consumes about 3,000 MW of power per day, and needs air-conditioning and a back-up generator. Plus, electricity charges run up to Rs 10,000-15,000 per month. From the banks’ point of view, setting up such an ATM can be viable only if at least 250 transactions are done every day—almost impossible in villages.

Gramateller, by comparison, consumes just 100 MW of power a day. Since it emits less heat due to lower power consumption, air-conditioning is not needed. The ATM comes with a battery back-up, which can run for about four hours. Electricity charges come to Rs 500-750 a month. Vortex is also the first company in the country to make solar ATMs. “Three ATMs are running on solar power,” says Kannan. Since the power required for Gramateller is only 100 watts, solar is a viable option, and it also reduces operating costs to virtually nil.

There are more ways in which Gramateller is tailored for rural areas. Apart from having all the features of a regular ATM, Gramateller has an added advantage: it allows biometric access. The option rests with the banks. In keeping with the relatively low disposable income of its customers, the machines stock Rs 50 notes. The machine’s total capacity is Rs 1 lakh, which is a small liability for a bank, and hence does away with the need to have a 24-hour security guard. Savings again.

Awaiting good times

These are still early days for Vortex. So far, it has installed 15 Gramatellers in Tamil Nadu and Andhra Pradesh, for leading public sector and private banks. “We expect to sell 50 ATMs this year, 500 next year,” says Kannan. He, however, refuses to disclose the names of his clients, only saying that 10 banks have shown interest, including big public sector and private banks. It also has orders from regional rural banks and cooperative banks in states up north like Himachal Pradesh, Haryana and Rajasthan.

Vortex expects to bring down the price of a Gramateller to Rs 1 lakh once production is scaled up. The company is cagey about its financials. But at Rs 1.75 lakh per ATM, 50 ATMs translates into revenues of Rs 87.5 lakh. “We should break even in two to three years,” says Kannan.

Vortex got two rounds of funding (starting 2001) from Venture East—a Chennai-based venture capital (VC) fund, with about $150 million in assets under management and which exclusively finances TeNeT projects. Venture East invested about Rs 30 lakh in Vortex. Then, in 2004, Aavishkaar, a Mumbai-based microfinance company, with a total corpus of about $14.5 million, invested $2 million in Vortex. “It was a product of the time,” says Vineet Rai, Chief Executive Officer, Aavishkaar. “Microfinance and rural finance was picking up in the country. We did take a risk, but we knew this ATM will work well.” In time, Rai expects demand to pick up not just from India, but also from countries in South Asia and South East Asia.

Interestingly, Vortex, which has 65 employees, has not invested in a manufacturing facility. It has partnerships with manufacturers. Says Kannan: “We give them the ATM design and specifications, and pay them on a per piece basis or by the number of hours taken to work on the product.” Vortex coordinates with suppliers and monitors quality. It customises the ATM according to the needs of the banks. “A private bank will be willing to spend more money for a colour display and a smart card, whereas a regional rural bank will ask for just a swipe card,” explains Kannan. Colour displays or not, more and more people in rural areas are swiping cards or sticking their thumb on the ATM machine, bringing in business for Vortex.

Source: http://business.outlookindia.com/article.aspx?101963

Its that astounding statistic that led two young doctors in Bangalore to come together 4 years ago to set up Vaatsalaya Healthcare—a chain of hospitals for Indias vast semi urban and rural population

Today, Vaatsalya treats over 35,000 patients every year and is proof that having your heart in the right place can be good for your wallet too Isha Dalal gets the story of Vaatsalya Healthcare

Vineet Rai enjoys putting a twist in the buzz about social entrepreneurship. Since his work is one of the reasons for the excitement about such businesses, Rai is now a frequent speaker at public events. “I can’t wait for the ‘social’ to be dropped” is usually his opening line.

Rai’s tightrope walk with India’s first social venture capital fund, Aavishkaar, usually attracts cheer-leading from the proponents of ‘inclusive growth’. But it simultaneously challenges the hollow claims about inclusion in business circles and the extreme skepticism of political activists that profit and social justice can ever be combined.

That’s partly because Rai likes both the ends of the spectrum for different reasons — but does not fully believe in either.

With a corpus of little over Rs 165 crore (Rs 1.65 billion), Aavishkaar’s portfolio is a tiny drop in India’s economy. So why is Rai’s restlessness with the label of ‘social’ important? Because it helps to highlight challenges that urgently need to be addressed.

There is no shortage of, what one insider calls, ‘faux-philosophers’ who tell policymakers and general public alike that social equity can be got by seeking profit in more innovative enterprises, particularly those which tap the ‘bottom of the pyramid’. Such trickle down oriented wealth-generation, this view holds, will eventually — some day — make all Indians prosperous.

But when Rai says that ‘shareholders can take that profit which is left after stakeholders needs have been met’ he is raising the bar much higher than most conventional business persons may be ready to jump.

Rai, now 38, entered working life just as the liberalisation process was getting underway. Born into a middle class family in Uttar Pradesh, Rai graduated from the Indian Institute of Forest Management and was recruited on campus by Ballarpur Paper Mills.

Being posted at a remote village of Orissa introduced Rai to the complex structure of poverty. Later, by what he calls a series of accidents, Rai became a research associate at IIM Ahmedabad and then CEO of GIAN (Gujarat Grassroots Innovations Augmentation Network), a company for promoting rural innovation, development and business.

He soon realized that the main barrier to decentralized, livelihood-generating rural enterprises is often not shortage of skills, imagination or initiative, but investors who are overly risk averse.

So with the support of a few business veterans and an initial investment of Rs 50 lakh (Rs 5 million) Rai cobbled together Aavishkaar.

Over the last ten years Aavishkaar has invested in companies such as — Servals Automation, which is producing energy solutions for the poor; Vaatsalya, creating rural hospitals for low income groups; Vortex Engineering, which designs and manufactures low-cost ATMs for use in remote regions; Rangsutra Crafts, a company of a thousand textile artisans from the remote regions of India; Saraplast, which provides mobile toilets and aims to solve sanitation issues; et cetera.

Most of these ventures would not have appealed to conventional venture capitalists because the risks were not matched by sufficiently high potential returns. The success of many Aavishkaar ventures has not altered this reality.

So Rai’s eagerness to drop the ‘social’ can sound premature. But it’s a back-handed way of saying that more of the same will not, by itself, expand economic opportunity and social justice. That will only happen when positive social impact is naturally embedded in the overwhelming majority of businesses.

Vijay Mahajan, the pioneer of for-profit microfinance has been known to say that “while the 20th century taught us how to become billionaires, the 21st century is a time for us to address how to distribute this wealth.” Or rather, as Rai puts it, the key challenge is how do you distribute wealth while creating it, rather than later.

One way to do this is through formations like Zameen Organic, a company owned by some 5,000 farmers, which marries some aspects of capitalism with those of the cooperative movement.

This fair-trade enterprise of pesticide-free cotton develops transparent trading relationships between ethical textile brands and small-scale cotton farmers in India. Aavishkaar is one of its investors.

Such community-owned companies are somewhat easier to foster at the start-up stage. What about the existing large corporate houses? For instance, would some of them offer a stake in the company, and thus a share of its future profits, to those people who have to be displaced in order to access land and minerals for industrial projects?

This proposition has been in circulation for a while but remains on the fringes.

Only when these realities change will it become unnecessary to have an additional or separate ‘social enterprise’ sector. It is significant, but not sufficient, that the goal is at all being visualized. The future depends on how the restless energy, of those who see these limitations, grows and keeps raising the bar.

Image: Vineet Rai, CEO, Aavishkaar.

Rajni Bakshi is a Mumbai-based freelance journalist and author of Bazaars, Conversations and Freedom: For A Market Culture Beyond Greed And Fear.

Source: http://business.rediff.com/column/2010/jan/18/rajni-bakshi-column-one-mans-crusade-to-bring-riches-to-rural-areas.htm(External Website)

Mumbai / Bangalore: Microfinance institutions (MFIs)—firms that offer tiny loans to low-income groups—are moderating their pace of growth, but private equity (PE) and venture capital (VC) funds that have invested in them aren’t complaining.

MFIs are going slow on opening branches and acquiring loan customers. In an attempt to improve quality control, the industry has prepared a code of conduct, following which MFIs will try to avoid heavy concentration in some regions and stop chasing the same set of customers.

High growth means high returns for PE and VC funds. Yet investors are pleased the Rs11,750 crore microfinance industry is starting to rein in lending to address concerns that unbridled growth may cause bad assets to pile up.

“As investors, we love growth,” said Sumir Chadha, managing director, Sequoia Capital India, which has invested in a few MFIs. “But in the lending business, you need to be very careful about your customer base.”

MFIs such as Ujjivan Financial Services Pvt. Ltd, in which Sequoia Capital has invested, are acting on the concerns about asset quality.

“A lot of MFIs, including us, have put in strict discipline in terms of growth. We have become choosy,” said chief executive Samit Ghosh. “If there are already three well-entrenched MFIs in a particular area, we don’t open a new branch there. Similarly, if a customer has borrowed from these three MFIs, one more MFI doesn’t lend to them.”

According to an October report by rating agency Crisil Ltd, MFI disbursements have increased at a compound annual growth rate of 90% over the past four years. There are at least 3,000 MFIs, and 400 of them have active lending programmes, the report estimates.

“The larger you grow, the more cautious you need to be,”said Shiv Narain, head of finance at Spandana Spoorthy Financial Ltd, India’s second largest MFI, with an asset base of Rs1,870 crore at the end of the last fiscal. “In 2008-09, we grew at 200% but in 2009-10, we will grow at 100%.”

The growth Narain is referring to is in terms of assets. In 2009, Spandana’s assets grew at 214% and client base at 104%.

Aavishkaar India Micro Venture Capital Fundhas invested in a string of MFIs including Grameen Financial Services Pvt. Ltd and Bhartiya Samruddhi Finance Ltd.

“One firm in our portfolio has registered lower growth in the first six months of fiscal 2010, but we are fine with it,” said Vineet Rai, chief executive officer, Aavishkaar. “Lending to the poor in India is a long-term process.”

MFIs say the initiatives to contain growth have been triggered by the firms’ plan to grow in a more responsible manner, which would include means of cutting down default and delinquency risks. Currently, the level of non-performing assets (NPAs) is around 1% but it is likely to rise if the industry continues to grow at a high pace.

In 2009, there were 27 private equity and venture capital deals worth $200 million in this sector, according to Venture Intelligence, a research service focused on PE and mergers and acquisitions, and the trend has been continuing in the current fiscal. At least one MFI plans to enter the capital market with an initial public offering.

According to the Crisil report, the asset quality of MFIs will deteriorate marginally over the short to medium term owing to an increase in larger ticket loan disbursements, multiple lending and migration of borrowers. “In the race for growth, the controls and practices may have been compromised and now they are being corrected,” said Ramraj Pai, director, Crisil.

To be sure, all MFIs do not need to apply the brakes on growth. “It’s a region-specific phenomenon. In states like Andhra Pradesh, Tamil Nadu and Karnataka, penetration of MFIs is very high, but MFIs need to grow fast in new areas,” said Sandeep Lohani, MFI operations adviser, Lok Advisory Services Pvt. Ltd, which has funded quite a few microfinance firms.

In Andhra Pradesh, for instance, there are 2.5 loans available per household of people living below the poverty line.

“If an MFI wants to open a branch in Andhra Pradesh, its board will come down and say, why Andhra Pradesh? It will question why do you want to expand or how you plan to expand. Two-three years ago, these questions would not have been asked,” said Baskar Babu, chief executive, Suryoday Micro Finance Pvt. Ltd.

Source: http://www.livemint.com/2010/01/12230210/Investors-happy-as-microfinanc.html

Here is a listing of top five VC firms in India according to number of deals and capital committed.

Venture capital was completely out of flavour this year with investors becoming risk averse. Growth capital, follow-on rounds and non-technology sector were the buzzword among the VCs. Several venture capital firms completely focused on private equity deals. According to the deal data, Aavishkaar Venture Management Services and Nexus Venture Partners were at the same level as the most prolific deal-makers with seven deals each.

Intel Capital
Number of Deals – 6
Amount Invested – $50M

Intel Capital, the corporate venture capital arm of world’s largest-chip maker Intel, started 2009 with a bang by announcing three new deals. These investments were in mobile services company One97 Communications, online B2B marketplace IndiaMART.com and vocational training institute Global Talent Track. The firm continued its deal-making throughout the year with follow-on investment in FINO, pre-paid card firm ItzCash and Wortal Technologies, which runs local events portal BuzzInTown.

Matrix Partners India
Number of Deals – 5
Size of Deals – $50M

The India arm of the US-headquartered venture capital firm closed five deals this year, which included three new deals. Matrix is eyeing growth capitals deals aggressively in sectors like education, infrastructure, financial services, among others. Its largest deal this year was $20 million growth capital investment in test preparation firm FIIJEE. Its other deals this year include Ver se Innovation Private Limited, a mobile classifieds service firm, and Siesta Hospitality, which provides transit apartments for corporate accommodation. It also made a follow-on investment in pre-paid card firm ItzCash and classifieds firm Quikr.

Nexus Venture Partners
Number of Deals – 7
Size of deals – $35M

The Mumbai-based venture capital firm, which manages $320 million across two funds, made five new investments and two follow-ons this year. Nexus started the year with follow-on investments in advertising network PubMatic and mapping firm CE Infosystems, which runs MapMyIndia service. Its largest investment was $10 million in Eka Software Solutions, which provides software for commodity trading and risk management. It also invested in US-based startups like VMops, a cloud computing firm and OLX Inc, a classifieds firm. Its other new investments this year included Deccan Healthcare, a Hyderabad-based nutraceutical products company and mobile payments firm mCheck.

Helion Ventures
Number of Deals – 5
Size of Deals – $18M

The venture capital firm which started out with a focus on outsourcing deals has placed big bets on India’s domestic consumption story this year. The firm closed four new deals this year and also made a follow-on investment in online ad revenue optimisation company PubMatic. One was in the speciality retail segment, where Helion invested Rs 20 crore in YLG, a chain of salons and spas. Another deal was Rs 16 crore in Brand Calculus, a Bangalore-based company which launched Canadian Juice and smoothies major Booster Juice into the Indian market. Its other investment this year was classifieds firm GETIT Infoserve and vocational training firm Global Talent Track.

Aavishkaar Venture Management Services
Number of Deals – 7
Size of Deals – $10M

The social sector-focused venture capital firm manages three active funds – two micro venture funds and one microfinance fund. Chennai and Mumbai-based Aavishkaar closed four deals from the micro venture capital fund, which invests below $2 million per deal. These investments were Waterlife India Pvt Ltd, a water purification company; Zameen Organic, an organic cotton trading company; Swas Healthcare, a chain of naturopathy clinics and hospitals and Saraplast, a sanitation solutions provider. Aavishkaar closed new investments in microfinance firms like Pune-based Suryoday Micro Finance and Varanasi-based Utkarsh Microfinance, which are relatively untapped region for MFIs.

Source: http://www.vccircle.com/500/news/chartbusters-five-most-active-venture-capital-firms-in-2009

Vineet Rai, CEO, Aavishkaar Social Venture Fund

Vineet Rai, CEO of Aavishkaar, a social venture fund, is one of the pioneers in social venture funding in the world. At the age of 26, he became the CEO of the company and has since helped hundreds of people successfully convert their ideas into businesses. It all started when a person went to him with an idea saying that he required Rs 10,000 to start the business.

As venture funds only funded ideas that had a potential of minimum Rs 10 crore, Rai had to refuse. Banks, too, refused loan to that person. “At that point, I realised that there were lots of ideas which could be converted into businesses by investing something as small as Rs 10 lakh to Rs 15 lakh, but no one was willing to fund them,” he says. He decided to fill this gap and launched Aavishkaar Social Venture Fund in Mumbai in 2001.

In eight years, the fund value has reached $35 million. The company has won several awards. Now, mainstream investors have started showing interest in the company. Running a social venture fund  has not limited his aspirations. “I want to earn, but the fun of doing it with a social objective is great,” says Rai.

Source: http://week.manoramaonline.com/cgi-bin/MMOnline.dll/portal/ep/theWeekContent.do?
BV_ID=@@@&contentType=EDITORIAL&sectionName=Business&programId=1073754899&contentId=6434060