International Finance Corporation (IFC), the private investment arm of the World Bank, is considering a commitment of between $10 million and $15 million to Aavishkaar India Micro Venture Fund II.
Aavishkaar India II is expected to be targeting between $100 million and $150 million, according to IFC documents. The fund focuses on providing financing to early stage venture enterprises in rural and semi-urban areas in India, in sectors such as healthcare, water and sanitation, education, agriculture and renewable energy.
Aavishkaar India II’s predecessor fund closed on $14 million in 2007 and is fully committed. The fund has invested in 23 companies.
Aavishkaar Venture Management also manages Aavishkaar Goodwell India Microfinance Development Company II, which held a first close on $10 million in November 2010. The vehicle's predecessor fund, a ten-year private equity fund focused on investing in enterprises active in India’s microfinance sector, closed on $18.3 million in May 2008.
IFC has been an active investor in the Indian microfinance space in Q1 2011. In January, IFC invested $35 million for an undisclosed stake in microfinance company Bandhan Financial Services, according to a statement on the IFC website. Kolkata-headquartered Bandhan focuses primarily on providing microloans to women in rural and urban areas, and has about 3 million borrowers and a $520 million loan portfolio.
Microfinance has to date been viewed as a valuable way for investors to achieve both financial and developmental returns. It has therefore been seen as a valid target sector for development finance institutions (DFIs) seeking to promote economic advancement in developing economies.
Microfinance in Inida has also been a subject of controversy, however, arising from a spate of recent suicides connected to to the industry. More than 75 people, mostly centred around the Indian state of Andhra Pradesh, have taken their own lives over the past few months after defaulting on micro-loans.
Critics attribute the deaths to unscrupulous lenders and aggressive recovery practices, while noting that the current state of microfinance in India mirrors the US’s own credit meltdown in 2008, when lenders peddled easy loans to homebuyers until the markets crashed and borrowers were unable to pay off debt.