International Finance Corporation and Yes Bank have established a private equity fund to invest in small- and medium-sized enterprises located in Northeast India, according to a company statement.
The exact fund size is to be decided after the firms have researched the economic potential of the region, chief investment officer at IFC Arun Sharma told Private Equity International.
“This is a relatively less developed region. The focus of IFC's work is to increasingly support those parts of the country that are not as economically developed as others. There is clearly an imbalance of development [in this region] and our contribution is much more [necessary],” he said.
In particular, the fund will provide loans to businesses in the food industry, agribusiness, infrastructure, healthcare, education and affordable housing that are based in the relatively remote region.
Sharma explained IFC is confident businesses in the region will provide good returns for the fund.
“This is a region that is rich in manpower and resources, and most importantly it is rich in opportunity because there is an enormous pool of untapped economic resources and economic needs in this region in particular. It is constrained by the lack of investment.”
Private equity investors have avoided businesses in the northeast of India because it has not been the focus of traditional industrial industry, according to Sharma.
“There are not a lot of `easy-picking' opportunities for the types of funds focused on growth, which is why you need sectoral expertise and a little bit of patience.”
Sharma said as IFC's research continues in the region, particular challenges the fund is likely to face with these businesses will become more apparent.
IFC has worked with Yes Bank before. In 2012, the DFI provided a $75 million loan to help Yes Bank expand its network to reach small and medium enterprises and agricultural borrowers in underserved parts of India.