Development finance institution looking for innovative funding ideas, says top executive.
Kolkata: Multinational funding organisation British International Investment (BII) is looking to raise exposure to India’s affordable housing finance and micro, small and medium enterprises (MSME)
the sectors that receive continuous government support and have shown significant improvements in asset quality metrics.
The British government’s development finance institution said that it has a strong pipeline in both debt and equity investments in these two sectors and that it is looking for innovative ideas for funding.
“We are currently pushing fun- ding into two big areas. One is affordable housing and the other is MSME finance. There is a third area which is microfinance,” BII’s director and head of financial services business in South Asia, Gaurav Malhotra, told ET.
“We keep looking for innovations that need funding, that need patient long-term funding. I would say we have a reasonably strong pipeline both on the equity and debt side to keep supporting some of these business models,” he said, adding that there is no dearth of availability of funds for the right business ideas.
The Indian government is pushing affordable housing through the housing for All scheme and MSME financing through credit-linked subsidy schemes for technology upgradation and credit guarantee schemes, among others. With recoveries gaining pace, the asset quality stress for lenders across the spectrum has also subsided.
BII’s outstanding investment in India’s financial services sector stands at $740 million, while the total exposure to India is around $2 billion. “BII has a substantial focus on financial services. It is one of the big areas where we have been Investing,” Malhotra, who has been with the organisation for nearly eight years.
BII makes equity investments, where it picks up direct shareholding in companies, debt investments and investments through its partner funds. Out of $740 million, $420 million is in equity, $230 mil- lion in debt and the rest is from partner funds.
On the affordable housing side, BII has debt exposure to Aavas Financiers and equity investment in Shubham Housing Development Finance Company.
In the MSME sector, BII has equity investment in four companies.
“In addition, we are looking at some innovative debt structures that can support them to grow their loan books further,” Malhotra said.
A third area where BII focuses under the financial services space is microfinance. But it looks to invest in companies which offer bigger micro loans to individual borrowers, instead of providing loans to members of joint liability groups.
“We are trying to see if we work with companies that are innovating on that business model who are trying to do credit at a slightly more nuanced level by valuing individuals rather than just relying on groups,” Malhotra added.
The joint liability group (JLG) model is being criticised for not assessing the needs of the in- dividual customer and not pro- viding the amount of funding that the customer may need to become productive.
BII in its previous avatar as CDC Group supported the early days of several microfinance companies, some of which have graduated to small finance banks and got listed over time.
Currently, BII is the largest share- holder in Utkarsh Small Finance Bank and has significant investments in Light Microfinance.
“We keep re-evaluating the role that we have to play in the sector,” Malhotra said.
Source-The Economic Times
