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Promoting Micro and Small Enterprises (MSMEs) is an important strategy to achieve sustained growth and economic prosperity, particularly in the world’s less developed countries. However, MSMEs constantly face challenges to scale in terms of funding, labor, regulations and supporting infrastructure. Aavishkaar India Micro Venture Capital Fund works to address the funding challenge of MSMEs by paving the way for micro-equity funding in a sector that has primarily been debt funded. In this case study, Dasra explores Aavishkaar’s flexible financing and efficient operating models, its successes, challenges and learnings.

During their formative years MSMEs’ revenues trail behind costs, causing them to be seen as high-risk. Most of them are yet to reach a stable growth stage, discouraging funders that naturally look to invest in established and profitable ventures. This mismatch between MSMEs’ needs and funders’ perception of credibility is one of the biggest challenges for MSMEs. The solution to this involves a migration from simple debt-driven instruments to risk-return models such as micro equity, in order to bring greater flexibility to MSME funding.

There is significant potential in replicating the Aavishkaar model to ensure lasting social change by way of supporting MSMEs. Aavishkaar has demonstrated success in achieving both financial flexibility and operational efficiency, and serves as a benchmark to other organizations in the sector. Dasra has identified and adapted a framework for replication, targeted at organizations similar to Aavishkaar.