Investment fund eyes Rs 5,000-cr corpus to help poor

The India Inclusive Innovation Fund (IIIF), formed under the guidance of Sam Pitroda, advisor to the Prime Minister on public information, infrastructure and innovation, is to approach foreign institutional investors and others to expand its corpus to Rs 5,000 crore, after it manages to raise an initial Rs 500 crore.

Approved recently by the Union Cabinet, the fund was launched formally on Monday. It was conceived by the National Innovation Council and the Ministry of Micro, Small and Medium Enterprises (MSMEs).

It is to invest in innovative ventures - scalable, sustainable and, therefore, profitable but to address the social needs of less privileged citizens in areas such as healthcare, food, nutrition, agriculture, education/skill development, energy, financial inclusion, water, sanitation, job generation and so on. The UK-based Big Society Capital functions on a similar pattern for social sectors.

"Usually, conventional venture capital will provide a rate of return of over 20 per cent. IIIF will provide an internal rate of return of 12 per cent, plus a social return not quantified," the official said.

Pitroda said at the launch: "The needs of people at the base of the economic pyramid are today served by philanthropy and government grants or subsidies, which can never be either adequate or scalable. IIIF seeks to leverage the model of venture capital to transform the lives of the less privileged."

The government will not be involved in the daily operations. These will be entrusted to an asset management company (AMC), set up as a Section 25 not-for-profit one. The AMC will appoint a professional management team for this purpose, as also an investment committee comprising professionals of repute, to tale all investment or divestment decisions.

A governing council comprising government nominees and eminent persons from public service, industry, finance, entrepreneurship, etc, is to provide oversight and ensure the aim of the fund is maintained. "We have already started discussions with leading fund managers to head the AMC," the official explained.

According to a senior official associated with it, IIIF has also initiated a discussion with IDBI Trustee Company, for being trustee company to the IIIF.

The fund will be registered under the Securities and Exchange Board of India's Alternative Investment Fund Category-I.

The MSME ministry has already committed to 20 per cent (Rs 100 crore) of the initial corpus and the balance is being given by banks, insurance companies and foreign financial and development institutions. The Fund will aim to provide modest financial returns, while ensuring significant social impact.

Lack of capital is one major reason why ventures and entrepreneurs seeking to address the needs at the base of the economic pyramid have failed to take off. IIIF seeks to address this gap and, therefore, at least half its investments initially will be to MSMEs. These are also the enterprises with the highest potential for job creation.

IIIF will also partner incubators, angel groups, public research programmes and laboratories to support commercialisation and deployment of socially relevant and innovative technologies and solutions.

(with inputs from Business Standard's Pune Bureau)