Investment to Target "Missing Middle" Between Microfinance and Commercial Capital Markets
NEW DELHI, India (February 20, 2008) – The Soros Economic Development Fund (SEDF), Omidyar Network, and Google.org announced today that they are working together to create a new $17 million Small to Medium Enterprise Investment Company for India to create job opportunities and spur greater economic participation for a larger segment of the population. This joint Investment Company is expected to provide capital to small and medium businesses in underserved markets.
"With this investment, we will meet the huge demand to serve smaller businesses in India that have little access to finance," said Neal DeLaurentis, Vice President of Soros Economic Development Fund. "Long ignored by commercial capital markets, small and medium businesses are an attractive investment opportunity as well as an engine for economic growth for India."
Many small to medium Indian businesses lack formal funding options because of a market gap between the microloans offered by microfinance institutions and the larger investments of commercial banks and private equity funders. Most of the existing Small to Medium Enterprise funds make investments in the $3-$5 million range, leaving out a significant portion of this market. The Investment Company will target this "missing middle" with equity investments between $500,000 and $3.5 million.
"We have seen what microloans can do at the individual level and are excited about bringing that same opportunity to small and medium businesses," said Jim Bunch, Director of Investments at Omidyar Network. "A new generation of entrepreneurs and their families will benefit economically and socially, and as their enterprises grow, these benefits can be shared with employees and their families, as well as the community at large."
"While SMEs in rich countries represent half of GDP, they account for a much lower portion in developing economies like India, partly because SMEs don’t have access to the same type of financing," said Sonal Shah of Google.org. "Our goal is to increase the flow of capital to SMEs in India. This is an important step in helping to attract commercial capital and reduce dependency on philanthropy or soft capital to fund this industry."
SEDF, Omidyar Network and Google.org plan to locate the Investment Advisor at the Indian School of Business (ISB) in Hyderabad to leverage the school’s SME expertise. Dr. Reuben Abraham, currently the ISB’s Director of the Base of Pyramid Lab and a board member of SEDF, is expected to be Senior Advisor.
The Investment Company will hire an experienced Investment Advisor and two experienced senior investment analysts based in India to recommend and build the pipeline of portfolio investments.
The Soros Economic Development Fund (SEDF) is a nonprofit private foundation. It is part of the network of charitable foundations created by investor and philanthropist George Soros. Established in 1997, the fund’s mission is to alleviate poverty and community deterioration. The fund makes investments—in the form of equity, loans, guarantees and deposits — in selected banks, microfinance institutions, cooperatives and social enterprise projects worldwide. To learn more about Soros Economic Development Fund, please visit http://www.sedfny.org.
Omidyar Network is a philanthropic investment firm committed to building opportunity for individuals. Established by Pamela and Pierre Omidyar, the founder of eBay, Omidyar Network supports nonprofit and for-profit efforts that enable people around the world to improve their lives and make powerful, lasting contributions to their communities. Since 2004, Omidyar Network has funded a number of organizations in areas such as microfinance, participatory media, and transparency in government. To learn more about Omidyar Network, please visit http://www.omidyar.net.
Google.org, the philanthropic arm of Google, uses the power of information and technology to help people improve their lives. They develop and invest in tools and partnerships that bring shared knowledge to the world’s most pressing challenges in the areas of climate change, economic development and global health. For more information, visit http://www.google.org.
Communications & Public Affairs Manager