Private equity group Pragati Equity Advisors has launched a fund dedicated to typically neglected areas in India, to which CDC has committed $50 million, according to a press release.
The fund will invest in the eight poorest states in India: Bihar, Jharkhand, Madhya Pradesh, Chhattisgarh, Uttar Pradesh, Rajasthan, Orissa and West Bengal.
Currently CDC is the only investor in the fund. Its target is between $75 million to $100 million, according to a CDC spokesperson. There are other potential investors currently in discussions with Pragati, and it hopes to secure more capital in the foreseeable future.
The fund will make investments of between $5 million to $15 million in a wide range of sectors, although it is expected to lean towards healthcare, infrastructure, manufacturing and education, perceived as the sectors most in need of investment in the region.
According to CDC, the population in the eight states, with 421 million people considered “multi-dimensionally poor” by the Oxford Poverty and Human Development Index, is largely illiterate and has little access to basic infrastructure services such as electricity or water. Some of the eight states are also considered badly corrupt, with one state, Bihar, ranked the most corrupt state in India in 2005 by UK anti-corruption organisation Transparency International.
These issues have formerly discouraged investors from approaching these areas, but CDC is confident the fund will be financially successful and hopes it will encourage others to invest in the region. The firm stated that although it cannot give exact predictions on figures, the returns it expects from the $5 million to $15 million investments will offer a rate of return for the fund comparable with other investments of this size in India.
Earlier this year, CDC revealed a change in investment strategy, moving away from its traditional fund of funds model and concentrating on direct and debt investments. A spokesperson said at the time that by 2015, 20 percent of CDC’s portfolio would be direct investments. It also confirmed its focus on South Asia and sub-Saharan Africa.