Providing risk capital to entrepreneurs at the bottom of pyramid for social and financial value
This entry has been selected as a finalist in the
Leveraging Business for Social Change: Building the Field of Social Business competition.
Aavishkaar believes that sustainable development can be achieved through growth of entrepreneurial initiatives amongst the poorest socio-economic groups. Aavishkaar, through its various initiatives in micro equity and micro finance space, is pioneering the approach of building a financial ecosystem that would nurture entrepreneurs by providing risk capital for scalable rural focused enterprises.
About You
Section 1: About You
Section 2: About Your Organization
Is your initiative connected to an established organization?
Yes
Organization Name
Aavishkaar Venture Management Services Pvt Ltd
Organization Website
Organization Phone
+91 22 42005757
Organization Address
516, 5th Floor, Palm Spring, Besides D-Mart, Link Road, Malad (W), Mumbai – 400 064
Organization Country
India
Is your organization a
For‐profit
How long has this organization been operating?
More than 5 years
Your idea
Name Your Project
Providing risk capital to entrepreneurs at the bottom of pyramid for social and financial value
Describe your Social Enterprise
Aavishkaar believes that sustainable development can be achieved through growth of entrepreneurial initiatives amongst the poorest socio-economic groups. Aavishkaar, through its various initiatives in micro equity and micro finance space, is pioneering the approach of building a financial ecosystem that would nurture entrepreneurs by providing risk capital for scalable rural focused enterprises.
Country your work focuses on
India, MM
Innovation
What makes your innovation unique?
Aavishkaar’s model is unique because it is able to accomplish twin objectives of maximizing benefits for rural populace where 70% of India lives and generating commercial returns for its investors by investing in socially relevant micro-enterprises across India. Hence Aavishkaar balances the seemingly contradictory realms of social cause and profit making.
Aavishkaar’s investments have created sustainable changes by increasing economic activity at the bottom of the pyramid, boosting entrepreneurial spirit and establishing socially motivated VC- funding as a new financing mechanism in India. Prior to Aavishkaar’s existence, fund requirements of entrepreneurs who operate at the lower end of the economic spectrum and were overlooked by financiers as they were categorized as being too small and risky. Aavishkaar has a strong record of investing in commercially viable enterprises that also have social impact. The social relevance and rural focus of our investments illustrate Aavishkaar’s promise of multiple bottom line returns. Aavishkaar's investments span a wide number of sectors such as Technology for Development, Handicrafts, Renewable Energy, Agriculture, Rural Innovations, Health and Education. The other unique points about Aavishkaar are:
Aavishkaar works very closely with its investee companies to provide necessary advisory and implementation support after the investment
Aavishkaar’s monitory and evaluation process aims to ensure that not only commercial returns but the social goals are also being tracked
Flexibility in structuring of investments to help scale businesses while minimizing promoter's dilution is one of Aavishkaar’s major differentiators as a venture capital partner
Do you have a patent for this idea?
Impact
This Entry is about (Issues)
Tell us about the social impact of your innovation. Please include both numbers and stories as evidence of this impact
The social relevance and rural focus of our investments illustrate Aavishkaar’s promise of multiple bottom line returns.Following stats illustrate the social impact Aaavishkaar has delivered:
Aavishkaar’s Investee Outreach has totaled over 1million disadvantaged people in India as on March31,2009
Over 65% of the investee outreach comprises of women
Aavishkaar’s investees have created an aggregate economic value benefit of over INR 3 billion(>US$60 million) since the time of our investment
For every rupee invested, investees have generated an economic value benefit of nearly 17times.Social Impact of some of our investee companies:
Servals Automation Private Limited:(Investment Date: November 2002,Stake: 49%)A rural technology company based in Chennai manufacturing and marketing a high thermal efficiency kerosene stove burner.The innovative design of the burner results in significantly enhancing fuel efficiency and reduces
kerosene consumption by 27% for every incidence of cooking,a saving that translates to almost 15% of a poor families monthly income.Kerosene is an important supplementary fuel in India,considering that over 70% of India
(as per Census of 2001)use fuel wood for cooking supplemented by kerosene.
Company has sold over a million burners,to poor households in rural and semi‐urban India.The total impact potential of the burners can be assessed by taking a closer look at the Indian burner market,which,according to
estimates has annual sales of 20million burners.If Servals were to sell 10% of the annual requirement,it would create savings of USD65 million in fuel costs per yr.The company currently operates on a decentralised manufacturing model,in which production is outsourced to small scale production units in different areas.Over 80% of Servals employees are unskilled or semi skilled;45% of employees are women,most of who had never worked previously.Vaatsalya Healthcare Solutions Private Limited:(Investment date: August 2006 Stake:Convertible Preference Shares).The company provides (first-in-town)basic and affordable healthcare to the semi-urban and rural population.A Vaatsalya hospital reduces the opportunity cost of accessing healthcare for the rural population.For every Rs.10 spent on medicare,Rs.30 is spent on availing that service;including cost of travel,loss of daily wages and cost due to improper and inadequate diagnosis.Vaatsalya aims to bring basic quality healthcare services closer to the rural populace thereby reducing the cost of healthcare.Currently Vaatsalya has four hospitals,with a combined capacity of 120 beds and with 34,000 patients utilizing theservices annually.Each hospital is staffed with gynaecologists and paediatric specialists,issues that affect a majority of women & children
Problem: Describe the primary problem(s) that your innovation is addressing
Aavishkaar is unique venture capital company which has showcased business model for investing in commercially viable enterprises that also have social impact. Hence Aavishkaar balances the seemingly contradictory realms of social cause and profit making.
The contribution of Micro, Small & Medium Enterprises (MSMEs) towards the growth of developing economies is well established. MSMEs create jobs, induce high growth ratesand are the harbinger of disruptive technologies that promote efficiency and overall competitiveness. Despite this importance associated with the MSME sector, one finds the MSME entrepreneur struggling for financial support. At the same time, the MSME lending institutions lament on the lack of qualified enterprises in this sector. Aavishkaar addresses the risk capital requirements of entrepreneurs who operate at the lower end of the economic spectrum and are overlooked by financiers as they were categorized as being too small and risky.
Also Aavishkaar addresses the problem of providing support to early stage ventures. Realizing the importance of mentoring and support, Aavishkaar works very closely with its investee companies. While the investment manager works to understand first to strengthen the investee company's business model during the due diligence process, the portfolio manager works closely with the venture to provide necessary advisory and implementation support after the investment. Aavishkaar plays a key role in strategically guide its investee companies in raising resources from other sources, aiding in M&A transactions and ultimately preparing the company for an exit.
Aavishkaar has illustrated investment in social enterprises with commercial intent lead to more rational and optimal utilization of society’s resources as compared to funding social enterprises with grants or donations which never turn out to be sustainable or scalable
Actions: Describe the steps that you are taking to make your innovation a success. Include a description of the business model. What might prevent that success?
The Aavishkaar venture financing model has illustrated that equity financing can be provided to the entrepreneurs who operate at the lower end of the economic spectrum and risk of loss of capital can be mitigated by closely working with the investee companies in the areas of planning and implementation.
The model is already being replicated by Aavishkaar. Aavishkaar is in the process of raising it second USD80 Million Micro Finance fund through which we invest in Microfinance institutions and enhance the availability of credit facilities across India. Aavishkaar has also formed the BYST Fund that targets to invest in small individual ownership business, widely prevalent in developing nations, but follows the multiple bottom line impact approach.
Aavishkaar is also involved in assisting various state governments like Uttaranchal State Government and Meghalaya State Government to design Social venture capital program to promote entrepreneurship in their respective states.
Aavishkaar has also received request for support from Africa (North Africa Fund being set up as a social venture fund). Aavishkaar has received request from numerous upcoming investment funds in social enterprises space for partnership including co-investment rights which clearly demonstrates that Aavishkaar is no more an isolated institution but has successfully pioneered the micro rural social investment philosophy that has numerous followers.
We don’t see any potential threats to the innovation in the bottom of the pyramid finance space as the opportunities for making social investments are abundant.
Results: Describe the expected results of these actions over the next three years. Please address each year separately, if possible
Through the new Microfinance fund, Aavishkaar will broadly have the following impact in the next 3 years:
• Serve 20-30Mn low income families
• Reach approx. 200000 villages
• Employ around 400000
In addition, the Company may also provide equity (up to 15% of its portfolio) and support to selected innovative enterprises active in the microfinance sector. These are businesses that enhance and improve the microfinance ecosystem through innovations and services in the potential areas like:
• Technology and delivery mechanisms: e.g. scalable IT platforms, mobile payments, ATMs, cards and point of sale devices and other “branchless banking” payment systems and distribution models
• Financial products and services: e.g. affordable housing, micro-insurance, remittances and other services beyond credit
The Company would provide strategic support to help expand the outreach and impact of these innovations. The objective is to build up a strategic portfolio of investments in such microfinance-related enterprises to create synergy with the Company’s MFI portfolio and support the development of the microfinance sector and improvements in the microfinance ecosystem. The
How many people will your project serve annually?
More than 10,000
What is the average monthly household income in your target community, in US Dollars?
Less than $50
Does your innovation seek to have an impact on public policy?
No
If your innovation seeks to impact public policy, how?
Approximately 150 words left (1200 characters).
Sustainability
What stage is your Social Enterprise in?
Operating for more than 5 years
Does your organization have a board of directors or an advisory board?
Yes
Does your organization have a non monetary partnerships with NGOs?
Yes
Does your organization have a non monetary partnerships with businesses?
Yes
Does your organization have a non monetary partnerships with government?
No
Please tell us more about how partnerships could be critical to the success of your Social Enterprise
Aavishkaar has entered into several non-binding MOUs with financial institutions, NGOs and entrepreneurship institutions in India to increase its outreach capacity with respect to prospective start-ups that meet its criteria for investment. In addition, Aavishkaar has strong relationships with banks, capacity building institutions and associations all across the country.
Aavishkaar maintains close working relationships with financial institutions such as the Infrastructure Development Finance Corporation, ICICI Bank, Yes Bank, ABN AMRO Bank, Standard Chartered; e-governance initiatives such as Drishtee.com, Indian Agri-systems Private Limited, N-Logue; rural and social entrepreneurship NGOs such as Ashoka International, the Indian System for Agribusiness Professionals and small industry associations such as TANSTIA in Tamil Nadu. Aavishkaar is continuously on the lookout for suitable partnering institutions.
Some of these partnerships have already linked projects to Aavishkaar. The Rural Innovation Network, for example, made the initial connection with Servals Automation, Aavishkaar’s first investment and the Infrastructure Development Finance Corporation referred Tide Technocrats, Aavishkaar’s third investment. Associated firms such as Intellecap are also widely regarded as strong companies with broad-based and in-depth presence in the field of MSME & Microfinance.
We would like to learn more about how your initiative is financially supported. Please explain your business plan/revenue model
Aavishkaar’s aim is to “reach 600,000 Indian villages through investee companies who either procure, serve or sell to these villages or have share holders and owners from these villages”
Aavishkaar aims to manage USD 1Billion under social assets across India and other developing countries and be recognized as a significant force in nation building. As our mechanism is to make investments in commercially viable ventures which are socially positive, the money multiplier impact will be far greater than the total assets mentioned.
The Story
What was the defining moment that led you to this innovation?
In 1998, the Government of Gujarat and the IIM Ahmedabad started Grassroots Innovations Augmentation Network, a rural business incubator, and Vineet was appointed its CEO. He soon realized there was zero funding for small business, particularly those enterprises emerging in rural areas. He also realized Bank finance was difficult to procure due to documentation involved, track record required for the company and promoter, tenure of loan was low, hence the repayment started soon after the disbursement of Loan. On encountering all these problems Vineet decided to set up a social venture capital fund . But get the required funding was extremely difficult.In the aftermath of the dotcom bust of 2001, ehen VC funds were shutting shop in India, Vineet swam in the opposite direction. Venture funding was a brilliant idea that could really make a difference but investing in rural markets required to take higher risks then vanila venture capital investing in technology and urban start ups. He pitched the idea to a group of Indians living in Singapore and Aavishkaar was born. In 2002 he managed to raise Rs50 lakh, but it took him four years to take it upto Rs5.6 crores.
Tell us about the person—the social innovator—behind this idea.
Vineet Rai is the founder of Aavishkaar Venture Management Services and the social innovator behind this social VC funding model for enterprises operating at the bottom of pyramid.
Vineet has over 15 years of experience in leading innovative interventions in Social Development, Venture Capital, Micro Enterprises and Microfinance Investments. Founder of Aavishkaar (and related companies), Vineet is the Co-founder and Director -Intellecap, a pioneer and leader in the multiple bottom line investment advisory industry. He is also the Co-founder and Director - Rural Innovations Network, a Chennai-based Non Profit company that creates networks for rural innovations. In several of his advisory functions, Vineet is on the advisory board of Lemelson Recognition and Mentoring Program at IIT Chennai.
Vineet’s philosophy for Aaviskaar right from the start is”We should be a social venture capital fund that makes a difference to the lives of people. We seek optimised, not maximised,profits”.
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Personal contact at Changemakers
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Comments
Dear Vineet Rai,
According to your experience what are the main barriers or challenges so that social business model can thrive?
Cheers,
The Changemakers's Team
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