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.
SEEKING SUPPORT FOR FUND
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.
