Northern Arc CEO Kshama Fernandes.
Northern Arc CEO Kshama Fernandes.

Northern Arc raises ₹200 crore debt from Dutch bank FMO

The deal marks the first issuance of green bonds in India's impact investing space, says Northern Arc CEO Kshama Fernandes

Mumbai: Northern Arc Capital, which lends to impact-focused companies and also facilitates debt financing, has raised 200 crore from Dutch development bank FMO via rupee denominated non-convertible debentures (NCDs), said a senior executive.

Established in 2008, Northern Arc Capital (earlier known as IFMR Capital) connects non-banking financial companies (NBFCs) working among financially excluded households and businesses with investors in existing and emerging debt capital markets. The company also has an asset management business, which invests in debt instruments of these companies, and has assets worth 850 crore. It offers affordable housing finance, small business loans, farm and vehicle loans, and microfinance.

The funds will be issued in two tranches of 100 crore each. One tranche has been classified as “green bonds", said Kshama Fernandes, chief executive and managing director, Northern Arc Capital. Green bonds are bonds earmarked to be used for environmental and climate-related projects.

Northern Arc will lend the green bonds portion of the fundraise to NBFCs that in turn finance the purchase of solar lamps, clean cooking stoves, electric and cleaner fuel vehicles, and for the financing of water and sanitation loans.

“The investment ticks a lot of boxes for FMO- in terms of women empowerment, environmental protection and financial inclusion. For FMO, this investment helps create access to the financially excluded and under-banked population of India, including women borrowers which is a focus area for Northern Arc," said Fernandes.

According to Fernandes, the bond issuance helps create a long-term finance source for Northern Arc. “The funding comes at a time when Indian non-banking lenders have faced a liquidity crisis in the last few months, triggered by a series of defaults by infrastructure lender Infrastructure Leasing & Financial Services (IL&FS)," she added.

Fernandes said the deal marks the first issuance of green bonds in India’s impact investing space. It is specifically aimed at fulfilling the UN’s Sustainable Development Goals.

“This green bond is particularly interesting as the on-lending is in the financial inclusion area of underbanked end-clients. This is breaking new ground and complementary to earlier green bonds that FMO has invested in, which ultimately support large-scale renewable energy projects. Both are vital to address the huge climate challenges of global warming and air, soil and water pollution," said Linda Broekhuizen, chief investment officer at FMO.

Founded in 1970, FMO has a committed portfolio of 9.2 billion euros, with investments in more than 85 countries supporting sustainable private sector growth in developing and emerging markets by investing in businesses, projects and financial institutions.

Northern Arc Capital is backed by PE firms Eight Roads Capital and Standard Chartered Private Equity (SCPE).