UK's CDC commits $10 mn investment in Indian microfinance funds

At a time when the microfinance industry is in the limelight, CDC, the UK government’s development private investment arm, and the parent company of Actis, has committed another $10 mn investment in microfinance funds, taking its total investment up to $ 120 mn in Indian microfinance funds.

CDC, which acts as a fund of funds, and has been created to invest through fund managers in poor and emerging countries, will be an anchor investor in the fund, Lok Capital II, sponsored by New York based not for profit organisation Lok Foundation, has also received investment from the International Finance Corporation (IFC) and European development finance bodies, for onward investment in a range of new and established Indian microfinance institutions (MFIs) and businesses.

The fund aims to raise a total of $80m, with CDC’s ten year commitment as the largest. Lok’s first fund, Lok Fund I was the first MFI-focused private equity fund in India to attract foreign investment, attracting a total of US$52m, and has made 9 investments in MFIs across India, serving more than 5.5 mn customers.

“Estimates put the current annual microcredit demand in the country at around US$22 billion from 245 mn low-income families, but the supply from microfinance institutions was only about US$7 billion last year,” said Venky Natarajan of Lok Advisory, which will manage the fund. CDC has net assets of £2.5bn and supports over 800 businesses through intermediate fund managers in developing countries, with a focus on Sub-Saharan Africa and South Asia.