Mumbai: With an eye on the growing SME sector in low-income states, International Finance Corporation (IFC), a member of the World Bank Group, has decided to invest USD 20 million (around Rs 100 crore) in Pragati Equity Advisors to fund projects in these regions.
"Considering that there is a huge scope for development in SMEs in low income states, we have decided to invest USD 20 million in Pragati Equity that will provide support to SMEs outside major urban centres creating jobs and promoting inclusive economic growth," IFC vice president for global industries Rashad Kaldany told reproters here on Tuesday.
The fund will support SMEs in states like Bihar, Chhattisgarh, Jharkhand, Madhya Pradesh, Orissa, Rajasthan, Uttar Pradesh and West Bengal and areas, where attracting private investment has traditionally been a challenge, he said.
"IFC's investment in Pragati will help enterprises in these states to access finance, thereby creating employment opportunities for the underserved," he said.
IFC, which has earmarked around USD one billion for the year ended June 2012, plans to invest around 20-30 percent of the funds in SMEs in low income states, Kaldany said.
"SMEs operating in the country's low-income states are constrained by limited funds. We see a huge opportunity in this sector as it not only gives job opportunities to the locals and ensure over all development of the region, but also gives a good commercial rate of return to our investments," Kaldany said.
Emphasising on the opportunity in low-income states, he said, "Nearly 45-50 percent of population is in these areas that have attracted around 2.6 percent of the total foreign direct investment (FDI). There is tremendous growth opportunity here. Since investing directly in SMEs is difficult, we are looking at co-investment opportunities like the one with Pragati."

Pragati Equity, which has set a target fund size of around Rs 500 crore to invest in various niche sectors, including manufacturing, speciality chemicals, SMEs etc, has already received Rs 250 crore from the UK-based CDC Group and Rs 100 crore from IFC.
"We will provide equity capital for expansion, environmental and social governance and operational guidance to SMEs in the most ignored regions of the country. The fund is designed to fill that funding gap and support the development of India's financial infrastructure," Pragati Equity Advisors founder and managing director Narayanan Shadagopan said.
He said that the company will invest in companies with a turnover ranging between Rs 50 crore and Rs 150 crore and the lock-in period will be of 5-6 years.
"We will pick up 25-35 percent stake in the companies. We expect returns of around 20 percent on our investments," Shadagopan added.