Dalits venture into funding to help community with Rs 500 crore fund
Biswarup Gooptu, ET Bureau Dec 3, 2011, 03.31am IST
BANGALORE: 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 collateralbased, 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.
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