Friday, June 13, 2008

Micro Financing

Financing Micro Dreams

MICROFINANCE is on the lips of every banker in India today. Private equity and venture capital investor have also taken a fancy for this growing sector that seeks to tap the credit and other financial needs of the country’s poor and unserved populations. This has given a rare opportunity to entrepreneurs to bring together social work and capital-led business professionalism. Intellectual Capital Advisory, or Intellecap as it better known, is a five-year-old firm that taps this niche, helping microfinance institutions (MFI) and similar groups scale up and make the investment grade.

Active since 2004, Intellecap has worked with around 30 organisations, assisting them with their business plans, helping them structure innovative debt instruments and also facilitating private equity investments. It acted as advisor to Legatum in the $25 million investment into ShareFin, one of the largest investments in an MFI in India.

“It’s not hard to figure why so many funds are flocking to MFIs. There are 8 crore families below the poverty line and even if each family takes a Rs 5,000 loan, it is a huge market,” says Vineet Rai, co-founder. Rai started the venture with his wife, Swati Rai, and two other friends, Pawan Mehra and Upendra Bhatt.

Rai and Mehra met at IIM-A where Pawan was a student. Rai was the CEO of Gyan, an incubation fund for rural innovation set up by IIMA and the Gujarat government. The two of them, along with Bhatt, a friend of Pawan’s, put together their savings and started the institution.

It is hard to pinpoint Intellecap’s precise line of business because like the firms it advises, it was not set up with the motive for huge profits. It was set up to bridge the gap between the entrepreneurs and investors, provide consultancy services and support to for-profit social enterprises along the lines of what their mainstream corporate counterparts could access, and knowledge advisory in the form of an MFI gateway it manages for the World Bank. The nature of the companies it advises also makes it difficult for Intellecap to earn substantial revenues from a single client or transaction, unless it has a diverse revenue mix.

In 2004, nearly all its revenues came from knowledge advisory and the MFI portal it built and still manages. In 2005, however, revenues from consulting services also kicked in and it was its largest business. In the last two years, in addition to these revenue streams it also got revenues from helping MFIs structure innovative debt instruments and advising on investment transactions such as the Legatum-Sharefin deal.

Social investment banking is a growing business and Intellecap is currently in talks with six organisations on the sell side and has working relationships with 10 entities on the buy side. As Intellecap grows and with the huge interest in the microfinance sector, this could soon turn out to be its largest business in the coming years.

“There is a complete dichotomy between the entrepreneurs of some of these socially-focused ventures and the investors who fund them. The entrepreneurs are talking about the poor and the investors are talking term sheet and drag along clauses — there is a fear psychosis when you talk about financing,” says about the need for such an advisory service.

Earlier this month, Intellecap itself got an $8.4 million investment from Legatum. It intends to use these funds to expand globally with centres in Amsterdam, London and Africa. “Amsterdam and London is where the money supply is and places like Africa and Asia is where this money is needed the most,” says Rai. Currently, Intellecap’s operations are spread between Hyderabad, which is emerging as the MFI hub of the country, and Mumbai. “Our entire team is below 30. I’m oldest person around,” says Vineet, all of 35.

What is Micro Financing?

Microfinance refers to the provision of financial services to low-income clients, including the self-employed. The term also refers to the practice of sustainably delivering those services. More broadly, it refers to a movement that envisions “a world in which as many poor and near-poor households as possible have permanent access to an appropriate range of high quality financial services, including not just credit but also savings, insurance, and fund transfers".

About Intellecap:

Intellecap is focused on the multiple bottom-line investment industry. As such, they offer services to various players within this space including investors, enterprises, entrepreneurs, multi-lateral development agencies, policy makers, and many others.

In order to intelligently allocate capital, they provide these diverse players with individualized services that range from investment banking, enterprise development, research, and trainings, to knowledge management and thought leading publications to develop the multiple bottom-line industry as a whole.

Working in both indirect strategic advisory roles and direct design and execution, Intellecap leverages its understanding of mainstream, profit-oriented business models to create unique solutions that create multiple bottom-line returns.

Article Resources:
Author: N Shivapriya is the cheif editor in the Economic Times and the article appeared in one of their successful columns called "Starship Enterprise". For more information on Intellecap log on Successful Entrepreneur: Micro Financing

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