For eight years now, the Lok Capital Group has been largely funding social enterprises in India. The very basis of its undertaking is to expand impact beyond financial inclusion and to support enterprises that develop products and services suited for small rural communities, many of whom make for low-income customers.
Agrant from the Rockefeller Foundation and with lots of self-belief, the Lok Capital Group was founded in 2000, by Rajiv Lall, Chairman and Vishal Mehta, Partner. The Group works from Delhi and Chennai and has two arms: Lok Capital and Lok Foundation.
Managing a whopping $86 million, Lok Capital has funded more than 19 social enterprises to encourage inclusive growth, something the group is committed to. On the other hand, the Lok Foundation was set up three years later as a charitable trust to promote financial and social inclusion, principally in India by means of targeted grants, technical assistance, research and advocacy.
The workings of the Lok Capital Group are quite simple in its objective. Because of the abject failure of government schemes, there is need to find ways to help improve the condition of India’s urban and rural poor by identifying commercially viable solutions. This is where the Lok Capital steps in to find out schemes that would not only benefit but would also be viable. Government schemes are not necessarily always bad. It fails to deliver largely because of mismanagement, corruption, inadequate research and lack of professional oversight and assistance.
For example, in 2013, The Hindu reported that 83 per cent of the midday meals tested in Delhi did not meet the nutritional values set by the Union Ministry of Human Resources Development. This lapse is not necessarily an incrimination against welfare schemes, but how bureaucratic complacency, venality and excesses create gross inefficiencies under the Indian government patronage, past and present.
The Lok looks for certain key parameters in enterprises to figure out if they are viable or not – things like transparency, customerdriven approach, focus on client protection and companies whose growth and profit models are in line with the Lok’s map. And hence the Social Action Plans (SAP) which guide the audit is of primary import to assess a company’s mission, its goals and systems, processes, products and outreach. The main focus of such an audit of a company’s social performance is to make sure that they can identify the operational risks in a highly competitive economic environment
At a time when private equity investments have not been doing too well, Lok Capital has been able to raise money for its third fund after having performed well in the past 10 years with its first two funds. It chose microfinance in the past and is now looking at micro, small and medium enterprises where the demand is consistently big. The fund is also looking at health care, agriculture and affordable housing. Lok was set up to invest in companies that not only make money but are also drivers for inclusion and socially oriented goals.
About their experience of working with Lok Capital, one of the investors had this to say: “I think there is a general divide between impact and commercial... and that has been going away steadily. People are seeing how impactful investing can be very commercial as well and I think that is one of the reasons why we are backing Lok from fund 1 to now fund 3. They have successfully demonstrated that you can do impact investing with very good commercial returns. They (Lok) are very consultative with their investors. From that perspective, we really like their approach of collaborative working with not just the promoters but with most of the LPs (limited partners), among the team themselves and working with the impacted ecosystem as well.”
The third fund will focus on growth-stage investments in financial services, healthcare and agriculture—with 70-75% of it going into financial services.
The firm has fully returned the $22 million it committed to from its first fund, with an internal rate of return of 15% in dollar terms. The second fund is currently tracking gross returns of 28% in dollar terms, while 75% of it has already been returned to investors.
When asked to explain the stellar returns, Lall said: “...balance in life is extremely important. So, people who have invested in the impact space, they have that sense. It is not like maximizing your returns in every investment you make. It is about making enough and building something alongside.”
Impact investment has been gaining traction in India. According to global consulting firm McKinsey & Co., the Indian impact investment space has seen $4.1 billion worth of cumulative investment in the past six years. Impact investing means 'profit with a purpose'. Such investments can provide financial returns, as well as positive social outcomes
Some of the companies part of the Lok portfolio are MAS, Rural Shores, Everest Edusys, Jana Lakshmi, Suryoday and Bhartiya Samruddhi, all spread across the subcontinent going back to March 2007 when Lok first began Series A investment in Jana Lakshmi. The companies Lok funds and supports together serve 6.8 million customers of which 64% are reportedly women. These companies provide employment to 16,237 people, 16% of them women. According to Lok, their financial service businesses have disbursed a whopping Rs 405 billion ($6.8 billion) worth of loans since the operation, with the 2013 fiscal year disbursements totalling Rs 65 billion ($1.1 billion).
MAS Financial Services
Established in 1995 by Kamlesh Gandhi and Mukesh Gandhi as a Non-Banking Financial Company (NBFC), MAS has over 2,00,000 MSM enterprise customers across Gujarat, Karnataka, Madhya Pradesh, Maharashtra, New Delhi, Rajasthan and Tamil Nadu. It’s a retail and wholesale financier that deals in housing, two-wheeler and commercial vehicle loans, to name a few. A glance at their profile reveals men and women who run a small business like footwear shops, bhajiyas (snacks), packaging centres and kiranas (retail store). What’s common amongst them is they’ve received multiple loans from MAS, where banks have repeatedly rejected them.
Everest Edusys
Everest Edusys was founded in 2011 by a group of researchers, analysts, educationist and policy makers to create an education system with a scientific bent and encourage critical study by designing progressive learning methodologies. Everest hires 69 employees at the moment, and almost half of them are women. Quest Explore Discover (QED) is their flagship product, which, till date, has mapped more than 500 curricula to help simplify excess of 200 science concepts for students. They currently assist 17 private school customers in the peninsula; are in the process of developing 10 Centers for Science Learning that’ll cater to 2,000+ teachers, and maintain 10 Managed Science Centers in 10 different zonal municipal schools run by Chennai Corporation. The latter benefits more than 200 schools. Their latest product Science Labs, hopes to enhance classroom learning through digital technology and activity-based science camps.
Hippocampus Learning Centres
Hippocampus Learning Centres was cofounded by Umesh Malhotra in 2010 in Bengaluru. The aim of starting HLC was to provide underprivileged Indian students with the same learning experience he had when his family moved to California for a year. Today, HLC runs 104 of its low-cost education centres. What started as an endeavour to help largely slum children has now expanded to benefit rural students, too. In 2012, Lok invested in HLC.
Drishti low-cost eye care
72% of Indians reside in rural areas. But, 90% of ophthalmologists work in urban areas. That leaves a meagre number of eye care specialists catering to millions of Indians. Kiran Anandampillai and his wife, Anjali, decided to give to the community by getting into the telemedicine industry. Most Indians have very poor access to primary health care, and when Kiran and Anjali met Dr Rajesh Babu, an ophthalmologist who highlighted India’s ‘blindness problem’, they began work to establish Drishti, a low-cost eye care service, in Karnataka. In December 2011, Drishti began the gruelling work of giving rural India access to eye care. In the course of their 2014 fiscal year, they’ve served nearly 25,000 patients, of these 10,000 are women, a group that has even less access to any kind of healthcare.
These are only a handful of those impactgenerating organisations Lok has helped support and invest in over the course of its work in India. The Lok Capital Fellowship Program, on the other hand, helps talented, young professionals work with their investee companies over a 12-18 month period to provide consultancy, analysis, research and advice as part of their mentor-support principle.
Such inclusion needs to go beyond just a financial one and incorporate health, education and social inclusion. Enterprises that enable this kind of holistic development are the ones The Lok Group is most interested in, as they might just be the future of the Indian nation.