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12 February, 2014
A pre-cursor to this is this.
Note for Establishment of Fund for Inclusive Growth (F.I.G.) under VIKAS Centre for Development
I. Overview
1. VIKAS Centre for Development is a registered Public Charitable Trust registered in 1978 under the Bombay Public Trust Act, 1950. Over the course of its 35 years of work, VIKAS has had a chance to work in urban and rural areas of Gujarat. As part of this work, VIKAS has given rise to, participated in, or facilitated set-up and development of activities, some of which have been incorporated as formal organizations.
2. As of date, several key activities, programs and/or organizations are under way, all directly or indirectly an outcome of the work done by VIKAS in the past.
3. In lieu of multiple such activities, projects, and programmes spread across multiple organizations, it is decided to consolidate all the decision-making with regard to investments, impact, and financial control under one team to ensure a) consistent alignment with the organizational understanding of impact, and, b) to provide a transparent and process-driven control of funds, and c) to guarantee accountability of the capital to all the funders.
4. Such a team would not supersede the existing governance and accountability norms of the different organizations. Rather, it would continue to work in line with their individual and respective mandates, but at the same time, ensure a sense of consistency among all these activities.
5. It is proposed to constitute this team under VIKAS Centre for Development in line with the historical role that VIKAS has played in the evolution of these several ideas. The act of constituting this team under VIKAS also makes it obligatory that this team work under the values of VIKAS. This mandate, broadly, is as follows (sourced from "Journey of VIKAS, 1978-2008", Rajesh Shah):
5.1. VIKAS defines development process as a movement from dehumanized state of existence characterized by poverty, deprivation, and exploitation to human state of being where all live with self-respect, dignity, and pride.
5.2. The mission of VIKAS is "To maintain the marginalized families in urban as well as rural areas of Gujarat through initiating and strengthening their Organizations to empower them and make them capable so that they understand, articulate, and address the issues of economic and social exclusion."
5.3. VIKAS' approach involves experimental learning through continuous cycle of action and reflection leading to greater awareness, sensitivity, and empowerment of people. The approach emphasizes on initiating and strengthening democractic organizations of the poor at various levels.
6. Thus, the terms of reference for this team [in the forseeable future] will be:
6.1. Create, deploy, and manage a Fund for Inclusive Growth (F.I.G.) that strictly works under the values of VIKAS as articulated above.
6.2. Strengthen the financial control procedures among all activities, projects, and organizations including enforcing a disciplined monitoring and review mechanism and an aim to establish the highest possible degree of regulatory compliance.
6.3. Understand, define, articulate, assess, and track impact across all activities, projects, and organizations. This understanding of impact should derive from the values of VIKAS, and in turn, should drive the investment decisions of F.I.G.
II. Guidelines for Investment under F.I.G.
1. The term "investment opportunity" would apply to propositions forwarded under the following institutional or quasi-institutional vehicles:
1.1 A stand-alone activity: existing or de-novo
1.2 A project: existing or de-novo
1.3 An informal collective: a self-help group and groups modelled on the SHG Pattern set-up under any government scheme
1.4 A formal collective: including a union, a co-operative, a producer company, etc..
1.5 A Trust, Section 25 (Section 8), Society or NGO
1.6 A for-profit
2. Every potential investment opportunity should meet these primary set of criteria for consideration:
2.1 It should be borne out of, or linked to, work done by the group companies at present or in the past.
2.2 It should be in a geographic location wherein one or more of the group companies has an established presene and relationship with the community.
2.3 There has to (or have to be) local resource(s) already identified who are intent on doing this and are willing to provide operational, managerial, and governance support, and, hopefully, participate in ownership and risk-sharing.
2.4 There has to be a broader consensus among target community.
2.5 It should lead to direct (not in an indirect/trickle-down manner) livelihood generation.
2.6 Preferably, it should lead to enhancement of environment. If not, then it should be able to clearly demonstrate that it does not lead to any deterioration in existing environmental conditions.
2.7 It should be in line with, and not violate, any of the local, state-level and national statutory and regulatory norms in any manner whatsoever.
2.8 There is a clearly defined manner in which any monetary surplus generated from the opportunity will be re-invested back into the community, and especially, to address issues related to women and children.
2.9 There is a clear communcation of how the books of accounts will be maintained, who will maintain them, and how they will be audited.
2.10 There is a clear identification of each and every stakeholder involved (however minor) and their role.
2.11 No stakeholder involved, especially those comprising the core management, should be implicated in/suspected of any prior financial mismanagement.
2.12 There has been a pro-active effort by the team to mobilize financial resources, to the extent they can, in the past. This could either be in form of personal money invested, money sourced from the community, and or money garnered through other projects, programs or government schemes.
3. It would be good if every potential investment opportunity also meets these secondary set of criteria for consideration:
3.1 An existing proof-of-concept. It would be good to have tried ideas instead of presenting only ideas.
3.2 Demonstration of some degree of financial sustainability especially with regard to the ability to pay-back principal.
3.3 Collective generation / transfer / allocation / ownership of some kind of non-monetary resource happens as an intended outcome, or a by-product of, the potential investment opportunity.
3.4 It has an element of empowerment and activism in a subtle, discreet and mature form.
3.5 A technical and financial feasibility study.
3.6 The presence of a 'co-investor'.
4. What is not expected for any investment opportunity that is considered [to have is]:
4.1 A business plan of projections: The decision to invest or not will be based primarily on past rather than future. In particular, with regard to the resources which constitute the field management, the intent of the community members, operational track record, and of the course the financial potential (which will be independently assessed by the F.I.G. team).
4.2 The ability of the leadership to articulate or communicate in English and investor-friendly terms as well as familiarity with management terminology.
4.3 The presence / absence of, the nature and the number of educational qualifications.
4.4 A clarity on how the investment is to be chanelled. For the proposals of interest, the F.I.G. will work with the concerned individuals to develop an appropriate plan of capital allocation.
15. In principle, F.I.G. will be open to channelling its investments towards following types of assets and/or expenditures. For each investment opportunity, it can be one or a combination of more than one of the following categories:
15.1 Physical assets
15.2 Establishment and set-up costs
15.3 Hiring of field staff
15.4 Hiring of senior level management
15.5 Leveraging support of subject-matter specialists: individuals or institutions
15.6 Strengthening of financial and governance systems
15.7 Standard SG&A spend
15.8 Working capital support to address temporary liquidity issues/concerns
15.9 Community building, awareness generation and development
15.10 Empowerment and soft / diplomatic activism related initiatives
16. The above can be grouped by the kind of funding support they would need (to understand this classification see points 17 & 18):
16.1 Short-term debt funding: Points 1, 3, 5, 7, and 8
16.2 Equity capital: Points 1, 2, 4, and 6
16.3 Grant funding: Points 9 and 10 above
17. Accordingly, the total amount to be allocated by F.I.G. towards investment will be divided into four categories:
17.1 Equity component
17.2 Debt component
17.3 Grant component
17.4 A reserve component to absorb write-offs on the debt component
18. The strategic intent of the fund behind each of these components will be as follows:
18.1 Debt component: The fund will have a clear preference for investment opportunities that can regularly absorb and pay-back small mamount of short-term debt. That is, ones that can consistently roll-over a small corpus of debt. These are the ideal investment opportunities for F.I.G. This will usually apply to already existing activities/projects/programs where the start-up costs have been borne by another investor or grant funder or one of the group companies of VIKAS in the past.
18.2 Equity component: In exceptional situations, where F.I.G. sees an investment opportunity that has clear technical, commercial, and impact viability it would be willing to bear cost of larger-ticket physical assets, establishment costs as well as hiring of talented resources.
18.3 Grant component: This will exist to ensure that wherever there is an opportunity to drive an impact deeper into the community, or engage the community, that opportunity is not foregone. To the extent it can, F.I.G. will aggresively and pro-actively support this endeavour.
19. The mix of different fund components will be decided in line with the above strategic intent. Prima facie, however, the debt component will dominate, followed by the grant component, and the equity component would remain the minority element. Wherever a large equity component is needed, it means that the opportunity a) needs a larger investor, or b) the opportunity needs to re-framed from an investment perspective. That is, instead of starting an initiative in a company mode, maybe, it is better to start it in an activity-mode.
20. Further, there is no formulaic approach for fixing this mix. This mix could change over time. However, each component should be range-bound and these ranges should be fixed in line with the strategic intent. In case the mix has to be fundamentally altered, then the strategic intent of the different components needs to be reviewed first.
21. The questions as to how to raise the fund in terms of one-time corpus or through an on-going fund-raising process needs to be determined. In addition, the management and administrative fees for the fund need to be worked out. However, as a rule, they should be minimized to the extent they can be.
22. It should be remembered AT ALL TIMES that while we use the term "investment" and "fund" these do not correspond to the standard connotations in practice today. The essence of F.I.G. is to arrive at an understanding of these terms over time through experience rather than choose from an existing set of meanings: be it conventional or non-conventional.
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