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(Photo: Reuters)
(Photo: Reuters)

‘India’s impact enterprises face issues accessing debt’

A report by IIC analysed the balance sheets of 422 leading impact enterprises to gauge their creditworthiness and estimate the gap between their current debt and their potential to absorb more

Mumbai: India’s impact enterprises, companies which strive for social benefit and profit are facing lack of access to debt, said Impact Investors Council (IIC) in a report.

While the Indian impact investing landscape is evolving at a much faster rate owing to India becoming a key market considering its size, access to technology and a huge base of consumers demanding low cost solutions they do not have the right access to capital, especially debt.

The report analysed the balance sheets of 422 leading impact enterprises to gauge their creditworthiness and estimate the gap between their current debt and their potential to absorb more. The analysis showed that 60% of the enterprises were creditworthy.

“Creditworthiness, however, does not necessarily mean access to credit. When we looked at debt on the books of those 422 companies and compared that to a conservative estimate of borrowing potential, the gap came to 1,564 crore, roughly $216 million," said IIC.

The agriculture and education sectors showed the greatest gaps, it added.

According to IIC, many, if not most, impact enterprises can’t meet the collateral-based lending criteria used by most banks. In these cases, it is the Non-Banking Finance Companies (NBFCs) that step in.

Impact investing took root in India in the early 2000s, this provides venture and private equity risk capital to support nascent microfinance enterprises. Within a decade, microfinance business models matured sufficiently to attract financing from banks and other mainstream financial institutions.

These investors have collectively committed $10.8 billion to for-profit impact enterprises. During that period, annual impact enterprise investments have grown from $323 million in 2010 to $2.7 billion in 2019.

“Impact investors to date heavily favour ownership equity in emerging impact enterprises over lending money for working or growth capital," said IIC and Bridgespan Group in the report.

72% of the funding needs are met through equity and only 28% came via debt financing between 2015-2019.

“Even as debt funding has diversified into a variety of sectors, 90% remains concentrated in financial services outside of microfinance. By contrast, equity investments showed more diversity, with 53% going to financial inclusion whilst education, technology, healthcare, and agriculture each received roughly 10% (nearly $1 billion each) of the $9 billion in total equity investments," said IIC.

“What started as a segment driven largely by financial services sector is now expanding to include various other industries including health & hospitality, education and logistics sectors. Indian impact investing players are starved for easy access to capital especially debt," said Ramraj Pai, CEO, Impact Investors Council.

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