History of Grameen Fund

Grameen Fund - A Brief

Grameen Fund is a new member of Grameen Bank's family of enterprises dedicated to poverty alleviation in Bangladesh through various initiatives in different sectors of economy. Its emphasis is on ventures that are risky and technology oriented that are usually deprived of financing from existing formal lending institutions. Grameen Fund (FUND) was incorporated on January 17, 1994 by the Registrar of Joint Stock Companies, Bangladesh, under section 26 of the Companies Act, 1913, as an association limited by guarantee, not having a share capital for promoting the objectives mentioned in its Memorandum. It is a "not-for-profit company which prohibits payment of any dividend to its members. Grameen Fund started operation from February 1, 1994.

Through its highly successful credit program for the rural poor, Grameen Bank has come to realize that its long- term developmental objectives require establishing mechanism to provide risk capital. The Bank has encountered many ideas, technologies and investment proposals that can lead to businesses which are economically compelling and socially progressive. These opportunities, however, do not neatly fit in with the regular lending program of the Bank which is targeted at the rural poor in need of micro credit. A mechanism is necessary to back businesses, manufacturing industries that are untested but have the promise of being commercially successful and yielded benefits to the poor. Grameen Fund was established to meet this need of risk capital for promising ventures that can produce not just good returns on equity investments, but also generate direct and indirect benefits for the rural poor. With the establishment of the FUND a long-felt need of Venture Capital Organization is met in the financial system of the company.

At present there is no recognized institution in the country which promote such untested and risky ventures through equity financing only. Investment Corporation of Bangladesh (ICB) provides limited bridge finances to new industries in the traditional sectors aiming mainly at development of capital market. They do not have any special fund for majority equity financing for promotion of ventures with untested product/business. The proposal to create Equity Participation Fund did not see the light of the day even after 25 years.

Grameen Bank has been engaged in providing funds to risky ventures in the rural area in development of small industries, fishery and agriculture from out of its Social Venture Capital Fund (SVCF) and lent Tk. 491 million. Having realized the necessity of a formal institution with necessary in-house capability of sourcing, financing. developing and managing the ventures with innovation and untested technologies, Grameen Fund was set up on 17th January, 1994 with transfer of 40 projects from SVCF with assets of Tk. 391.2 million. Fund is still building necessary capabilities of managing them and have undertaken financing of new ventures within Fund's objectives. In the brief period of its existence it has provided equity cum loans to new companies set up with innovative products and provided necessary management support. It has given bridge loan to one of these companies besides 51% equity to enable it to acquire full operational capacity and gain capability to borrow from commercial banks. This may be considered a useful technique by the FUND to continue with its activities with limited resources and until the Companies enter Capital market. FUND consider that this model will be used in its operation to promote medium sized company investors.

The major objectives of the FUND are:

  • to provide majority equity in companies trying to develop innovative technique in various sectors that hold promise of future growth having direct or indirect impact on poverty alleviation. The preference will be for Information technology, Communication, Bio-Engineering, etc.,
  • to provide loans/equity or both in risky ventures with untested technology/product either in new company or existing company for balancing, modernization or expansion,
  • to assist in Management Buy In/Out of existing companies needing finance and management support provided such companies activities/products bring direct and indirect effect on poverty alleviation and or development of rural poors in housing, sanitation and health programs,
  • to promote or develop enterprises having prospect of export or import substitution that will use indigenous raw material, provide extensive employment to rural poor and or help upgrade skills of rural or urban poors.

The FUND uses various methods of financing depending on the needs of the proposed companies and the ability of entrepreneurs. Briefly it shall provide assistance by way of:

Direct Equity
Equity cum loan
Bridge Finance
Management Buy In/Out

Ratio of equity or loan or both be mixed skillfully to suit needs of the company. Since the venture capital require very intensive supervision and control FUND shall exercise control over affairs of the companies through majority directorship on the Board of the company. It shall reserve right to appoint senior management staff including Chief executives in the venture Companies. For Companies/Enterprises located outside Dhaka, Grameen Bank branches by arrangement would supervise loans extended from FUND for which Grameen Bank paid service charges.

In addition to improving monitoring and supervision of existing projects transferred from SVCF of Grameen Bank to the FUND in 1994, it has lent in both Grameen family organizations namely viz. Grameen Matshay (Fish) foundation, Grameen Krishi (Agriculture) Foundation and Grameen Uddog (Enterprise) engaged in production, marketing and export of printed fabric now known world over as "Grameen Check", as well as companies formed with entrepreneurs from outside. The activities of the newly formed companies with outside entrepreneurs are briefly discussed below.

  • Grameen Babsha Sheba (Pvt.) Ltd. is formed in March 12, 1996 with the aim to supply consumer goods to small traders/shops in rural arcas on commission basis so that small shops can avoid choke-hold on them by local whole-sellers and improve profitability. The company is given both equity (90%) and loan by the FUND. This company is making small surplus within 6 months.
  • Grameen Bio Center is formed with 70% equity from Grameen Fund to provide loans to purchase cow by women in rural areas. The milk will be collected for marketing in urban areas by the company to ensure fair price to borrower and also ensure recovery of the instalment of loans. The aim is to increase economic activities of poor and enhance protein supply and consumption.
  • Grameen CyberNet Lid. a company is formed with 51% equity by Grameen FUND and also loan to acquire Computers, Servers and other equipment. The company a Information Technology company is one of the first Internet/E-mail service provider in the country. The company is successfully launched and have by now paid off loan of Grameen Fund after borrowing from Commercial bank

Until recently Grameen Fund (GF) was mainly engaged in managing the projects transferred to it from Grameen Bank under its Social venture Capital fund (SVCF) and also used Grameen Bank's vast net work for locating/sourcing ventures for its financing. While it shall continue to use this vital channel it also wishes to look to other agencies for sourcing new venture projects. Besides contacting various chambers of industries, development agencies like MIDAS (Micro Industries Development Assistance and Services, an organization funded by US-AID), BCSIR a government research organization, BSCIC another government organization engaged in development of small industries. FUND may in future release invitation through press for ideas and projects.

Expecting increasing response, FUND wishes to undertake meaningful initiative to increase its institutional capabilities (fund, manpower etc.) by organizing required facilities as stated below before such advertisement:

  • Fund shall endeavor in establishing more useful working relationship with International funding bodies like ADB, IFC, IDB, CIDA, GTZ, KFW and other Donor's. Effort shall also be made to establish funding relationship with various foreign and local financial institutions. It may venture to raise fund by issuing Bonds in Commercial market in future.
  • Fund is contemplating to improve the skill and professional competence of its officials through participation in different training/workshop/seminar related to FUND's activities at home and abroad.

The performance of FUND's overall portfolio is yet to reach desired level. This aspect needs to be judged alongwith the facts that majority of the projects currently in operation, commenced its operation in the recent past. However, taking initiatives to explore the untapped sector(s) of the economy with risk sharing attitude demand concentration and waiting. One need not forget also the pitfalls in venture financing

Responding to the challenges with absolute determination, FUND intend to continue playing a pioneer role in creating a risk-sharing investment environment and in opening new horizons within the economy for the country's sustained growth and development towards improvement of quality of life especially of the poor.