Caspian makes debt breakthrough

Caspian Impact Investments (CII) will provide debt capital to specialized intermediaries serving low income or financially excluded communities. The focus will be on four sectors: microfinance, small business financing, food and agriculture, and affordable housing. Of these, only microfinance is designated a priority sector to which banks are mandated to lend money, so the need is clear.

"We saw an opportunity in the impact sector as companies have matured over recent years. They have positive cash flow and could easily take on debt instead of diluting equity to finance expansion" said S. Viswanatha Prasad, Caspian's managing director. "Senior secure tranche investors can expect returns of 11%, junior unsecured investors make about 15%." 

Caspian's previous equity portfolio, operated through the Bellwether Microfinance Fund and Indian Financial Inclusion Fund, returned 15%.
CII has already received $10 million in commitments from impact investing specialists as well as local investors and the promoters. Hivos, a Dutch non-governmental organization, will facilitate access to the fund for borrowers from the food and agriculture sector specifically, while FMO will provide general technical assistance to support portfolio development.

The average loan size made by the fund will be of INR50 million. They will be extended at an interest rate of 13-16% with a tenure of 2-5 years. This is about 2 percentage points above the rate at which commercial banks lend to such companies. 

CII has already invested in a Bangalore-based financing intermediary that works with small businesses and there are other deals in the pipeline, according to Prasad.

India's microfinance sector is still getting back on its feet after measures introduced to curb over-aggressive debt-collecting tactics had the consequence of making it harder for all lenders to recoup money from customers, which in turn made investors wary of exposure to the industry.

Recent deals suggest they are now coming back, with New Delhi-based MFI Satin Creditcare receiving INR410 million ($7.5 million) from three VC investors in April while Ujjivan Financial Services raised $25.5 million from seven investors last year. Prasad adds that regulatory change is also taking place in other areas to the benefit of social sectors.

These include a specific category under India's new alternative investment funds (AIF) platform for venture capital funds, small- and medium-sized enterprise funds, social venture funds and infrastructure funds deemed to have "positive spillover effects on the economy." Such vehicles can qualify for a range of incentives and concessions. 

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• Topics
• Funds
• Financing
• South Asia
• India
• Fundraising