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Dalits venture into funding to help community with Rs 500 crore fund

Dalits venture into funding to help community with Rs 500 crore fund

Author: Biswarup Gooptu
Publication: The Economic Times
Date: December 3, 2011
URL: http://articles.economictimes.indiatimes.com/2011-12-03/news/30471808_1_dalit-indian-chamber-dalit-entrepreneurs-dalit-businessmen

Introduction: Rs. 500-Cr VC Fund to take off in MID-2012

India's Dalit businessmen are pooling together risk capital to set up a venture capital fund for their brethren, the first initiative of its kind in the country. The Rs 500-crore fund, being championed by the Dalit Indian Chamber of Commerce and Industry, will be registered with capital market regulator Sebi by the end of the year.

It will open for business in the middle of 2012. The initial corpus for the sector-agnostic fund will come from the community's business elite, a group which includes Ashok Khade, chief executive of the Rs 500-crore Mumbai-based Das Offshore Engineering, and Rajesh Saraiya, chief executive of the $400-million (Rs 2,000-crore) UK-based steel trading firm Steel Mont, who will anchor the fund as Limited Partners, or LPs.

"The current funding mechanisms are largely collateral based, which means they are out of bounds for a number of Dalit entrepreneurs," said the chamber's Chairman Milind Kamble, explaining the rationale for setting up the fund. Dalits number about 200 million, or one-sixth of India's population, but control only 1% of the country's wealth because they own very few assets, according to D Shyam Babu, a Dalit scholar and activist, who is researching the community's economic progress.

The Dalit business community has traditionally faced major hurdles in accessing capital despite the creation of government institutions such as the National Scheduled Caste Finance and Development Corp. "The amounts disbursed are too small - barely Rs 5 lakh - and even that is doled out in instalments. There is no denying the government programmes are designed to help, but they fall short," Babu said.

The fund will be run as a regular risk capital entity but will need to balance social good with commercial interest as the aim is to broaden the availability of capital for Dalit businessmen. "But this fund is not a charity; it will be run as a business," Kamble said.

Prasad Dahapute, MD at Varhad Capital, a boutique investment banking firm involved in setting up the fund, said they are seeking at least 30 members to contribute Rs 5 crore each. A number of well-known Dalit businessmen have been asked to contribute to the fund and many have agreed, he added.


The industry body is seeking institutional support from agriculture bank Nabard, IDBI and the Asian Development Bank. It is also in talks with the government to make it an investor. To ensure Dalit businessmen get added support, fund managers will hold their investments for 7-10 years before exiting, in contrast to average holding periods of between three and five years for mainstream VC funds.

"The exit strategy will be different from that of a regular VC fund, because there is a larger objective for us," said Arun Khobdagade, managing director of RAS Frozen Foods and a director of the Dalit business chamber. The fund will be open only to members of the chamber, and to raise capital Dalit entrepreneurs will have to produce caste certificates issued by the social justice and welfare ministry.

"Most government programmes have been set up to promote employment rather than entrepreneurship. However, the Dalit venture capital fund, while having a social objective, will focus on returns on investments," Babu said. Balu, a Bangalore-based Dalit businessman who makes soldering equipment, welcomed the proposal for a VC fund saying the benefits are potentially very large.

"Since access to capital has been a major stumbling block for us, we can now think of scaling up and exploring international markets, which has been rather difficult for us so far," he said. The fund aims to build upon a slew of measures recently propagated by the Centre, including a plan for preferential purchases from micro, small and medium enterprises, and also from businesses owned by scheduled castes and scheduled tribes.

Globally, many community focused social venture capital funds have emerged in recent years seeking to strike a balance between social benefit and financial returns. Among the most visible is the South African government sponsored National Empowerment Fund, which was set up in 1998 with the aim of facilitating broad-based black economic empowerment.

"We are looking at various models. But we also have to educate a significant number of Dalit entrepreneurs about the objectives of the fund and how it works, which can be a bit of a challenge. So far, a number of them do not have much of an idea about non-conventional funding sources," Dahapute said.

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