The non-banking financial company to use funds to provide debt finance for social enterprises
Mumbai: Grameen Capital India (GCI) that advises and arranges finance for microfinance institutions on Tuesday said it has raised money from Tata Group chairman emeritus Ratan Tata and others for its business that will provide debt finance for social enterprises.
The exact amount of investment was not disclosed, though GCI said in a press release that it is looking to raise an initial corpus of $10 million for the non-banking financial company (NBFC).
“The debt vehicle has received equity investments from Ratan Tata, Shrinivas Dempo and Vikram Gandhi, in addition to existing GCI investors, Grameen Foundation, Amit Patni and Arihant Patni," said Royston Braganza, chief executive officer of Grameen Capital India in the release, without disclosing the quantum of investment made by each individual.
This will be Tata’s first investment in the social impact investment space, Braganza said over the phone.
GCI is planning start lending through the debt vehicle in the next quarter.
“We are still working on the final offering. Depending upon the need, we will provide debt, which might be in the form of syndication or securitization. We will look at placing some of the paper in the main stream capital markets," said Braganza.
Braganza said there is an estimated $200 billion gap in debt capital required for micro, small and medium enterprises in India.
GCI will use its own balance sheet as well as syndication to provide timely infusion of capital for impact enterprises to help them scale sustainably, it said in the release. The initial focus sectors will be on financial inclusion, agriculture, affordable health and affordable education.
“Traditional sources of debt, in many cases, are neither adequate, affordable nor timely, hence forcing social enterprises to end up using equity for working capital. We hope that our debt vehicle will help, in some modest manner, attract attention and debt capital to the base of the pyramid," Braganza said in the press release.
The company is also in advanced discussions with two institutional investors to meet its targeted initial raise of $10 million, the release added.
GCI, which started as an investment advisory services provider to the impact sector, has facilitated more than $160 million in equity and debt capital funding for social enterprises.
GCI’s plans to provide debt capital to early stage ventures is in line with a pick-up in venture debt funding initiatives.
“In the recent budget it was announced that certain NBFCs will be treated as financial institutions and hence they will get the same rights as financial institutions for asset reconstruction. Therefore, generally, there is an added traction in the market, as these NBFCs will have a better recourse in future to recover the borrowings they make," said Shefali Goradia, partner at BMR and Associates Llp.
These NBFCs look at a sweet spot where banks are not able to lend and as many of the start-ups and MSMEs generally don’t qualify for bank funding, it is the NBFCs who provide early stage capital, she said. However, interest rates charged by them are higher than banks, she added.
Interest in venture debt finance is growing.
Recently, RBL Bank said it would be the anchor investor in Trifecta Capital’s venture debt fund which will focus on start-ups that have raised Series A or B rounds of equity funding.
IntelleCap, a social advisory and investment banking services firm has launched IntelleGrow, which will provide venture debt on an experimental basis. Capital Float, which has raised funding from SAIF Partners and Aspada Investment Co. in August last year, also provides short-term working capital loans.