ugro ​​capital: SME-focused impact investments being hijacked in India, UGRO Capital’s Nath

In the impact investing ecosystem, SME-focused investing does not currently appear to be successful enough, experts say.

“Despite the huge potential of impact investing in the MSME sector and its enormous credit challenges, it seems that SME finance has become primarily the job of the Indian banking system. “another, capital is being diverted and channeled into other avenues. Most multilateral development finance institutions and impact financiers have moved away from the broader categorization of SME finance,” said Shachindra Nath, vice -president and managing director of the fintech platform UGRO.

He was speaking during a webinar, SME Lending & Social Impact in India, organized by UGRO and SME Finance Forum, a global platform aimed at channeling access to finance for small and medium enterprises.

Impact investing is an investment strategy that aims to generate specific beneficial social or environmental effects, in addition to financial gains. It can take the form of many asset classes and can have many specific outcomes. The goal of impact investing is to use money and investment capital for positive social outcomes.

In the area of ​​SME lending and social impact, Mathew Gamser, CEO of SME Finance Forum, pointed out that the key question regarding impact investing is whether it can be scaled to viable way.

“A lot of what is called impact investing is often not an investment at all. It’s just giving money and not following what comes back,” he said, adding that you really have to know what the impact of such investments is. “There’s a lot of hype about investors getting so much money, but there’s not so much information about the impact.”

Small businesses in India employ over 100 million people or 40% of India’s workforce and account for 29% of India’s GDP and 49% of its exports. India’s SME finance gap is $221 billion, or 10% of its GDP, according to the SME Finance Forum. However, current credit products are designed to serve only around 600,000 MSMEs, leaving out more than 60 million MSMEs, he estimates.

Speaking on the occasion, Bama Balakrishnan, COO, Northern Arc, discussed the changing payment infrastructure landscape in the country. It would also facilitate digital lending models. Small providers have been able to accept payments through the UPI network, and the trend has also improved data availability for debt underwriting, she noted.

Bama insisted that two segments were increasingly being left out of finance’s reach. “One: women entrepreneurs. While I see more and more people focusing on this, measuring this and reporting on it, we still see significant gaps. Second: rural MSMEs. Additionally, the design of digital platforms assumes that the borrower is English-speaking, and this continues to be a limitation.

Highlighting the opportunities for impact investors in India, Nikunj Oli, investment specialist at the Asian Development Bank (AfDB), said his organization has a strong lending relationship with several major banks and NBFC. It also carries out several indirect financing interventions, most of them through guarantees. “One of the constraints of ADB is in terms of resources, both financial and in terms of personnel, to carry out many transactions in India. So we have to focus our interventions on a few entities and most of them end up being, you know, sort of large to medium-sized banks and financial institutions. We have to recognize the problem that we cannot work with smaller NBFCs which can have a more targeted approach to financing SMEs,” Oli said, adding that the AfDB was designing an inclusive business program.

Aditya Mohan, Chief Investment Officer, Triodos Investment Management, said microfinance was the fruit at hand. “You don’t have banks looking to lend to these MFI clients from an impact perspective. Historically, in the last two years, we didn’t have as many public sector banks, etc., looking to lend to NBFCs, MFIs. So it worked well because everyone had a sort of unique monopoly slot. I think as it moves to the MSME side, it’s a lot more difficult because there are a lot more players operating in the same segment,” he added.

Mohan called for the need to employ a differentiated strategy to succeed – a strategy that enabled increased collaboration.

Deepa Hingorani, vice president of the Developing Countries Investment Fund, said her organization’s investment strategy is based on two key pillars: investing in climate change mitigation and focusing on an inclusive economy, that is to say contribute to the reduction of inequalities, including income inequalities. This is essentially where financing for MSMEs comes in, she added. According to her, for the SME finance ecosystem to develop and grow sustainably, there should be a steady flow of capital. To do this, lenders and equity investors should have confidence in the industry’s ability to generate a consistent and responsible return on assets.

In India, around 90% of MSMEs are either self-financed or financed through informal lending channels. The mainstreaming of formal finance is therefore limited for MSMEs. According to UGRO, the addressable financing gap for MSMEs in India was a whopping Rs 39 lakh crore. At the same time, the volume of impact investing has been growing rapidly since its inception in 2001.

Since 2010, cumulative impact investments in India have exceeded $5 billion. In 2015 alone, $1 billion in impact investments were made. According to McKinsey, India has the potential to increase its impact investments by up to 25% by 2025, totaling between $6 billion and $8 billion invested.

While impact investing is a promising solution to closing the financing gap for SMEs, there are several challenges in this sector. According to the Brookings Institution India Center’s survey of impact investors, the top three significant challenges in the Indian context were appropriate capital across the risk-return spectrum, appropriate exit options, and measuring risk. impact.


carried out an impact assessment study for its MSME clients. The Mumbai-based lender said it was building stakeholder confidence in UGRO’s commitment to sustainability and creating impact. As part of the study, Sattva Consulting independently interviewed more than 450 clients and partners of UGRO Capital. It was concluded that UGRO’s sector-wide approach directly contributes to several SDG objectives, such as affordable and clean energy, quality education, good health and well-being, cities and communities. sustainability and zero hunger.

Here are some of its key findings:

  • 73% of MSMEs showed healthier average bank balances leading over 13,000 estimated customers to have an improved cash position
  • 80% of MSMEs reported increasing their annual revenue by 5-20%, translating to over 13,000 estimated customers increasing their annual revenue
  • 17% of MSMEs reported geographic expansion supporting more than 3,000 estimated customers with new branches or stores
  • 7 additional permanent hires on average by MSMEs, leading to the creation of more than 1,16,000 estimated additional jobs
  • 3.7 additional female hires on average by MSMEs, generating over 64,000 estimated additional female jobs
  • 70% of entrepreneurs reported an increased appetite for risk taking

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