Mumbai, Dec 23 –A few weeks ago India Climate Dialogue, one of the few reputed media that converges and covers conversations specifically around Climate Change spoke to Santosh Kumar Singh , Director , Energy, Agriculture and Climate Change, Intellecap for  a story titled, “Climate risk strategies needed for investors in India” which talks about the imperative need of Financial institutions in India to integrate climate risk considerations in their investment decisions and portfolio management to mitigate impacts 

India have lost over USD 80 billion in the 20 years to 2019 due to climate change and the losses could only multiply in the coming years, a recent report has said.

Businesses and investors need to be more proactive in incorporating climate risk considerations in their operations , along with the government, which needs to include climate change resilience initiatives in its policies, said the Climate Risk Mainstreaming; Approaches for Indian Financial Institutions report by the Shakti Sustainable Energy Foundation .

“The country has faced intense and increased events of floods, drought, cyclones, erratic rainfall, heat (and) water stress, which has impacted livelihoods, businesses, and thus the portfolio of financial institutions,” the report said. “Hence, it is important for financial institutions to rethink their financing strategies and deploy capital with careful consideration of climate risk mainstreaming strategies.”

The study carried out by Intellecap, a financial advisory, mapped the understanding of financial institutions in India on climate risk mainstreaming requirements as well as implementation strategies.

“As of now, Indian financial institutions do not have a specific strategy to manage risks induced by extreme weather events in their operations and portfolios,” said Santosh Kumar Singh, director, energy, agriculture and climate change, Intellecap. “A majority of financial institutions suggested that it will take another 3-4 years for them to develop and consider climate risk mainstreaming models for their investments.”

For instance, in its annual survey of energy transition in developing countries in Climatescope 2020, BloombergNEF found a 12% decline in clean energy investments in 2018-19 to USD 8.5 billion. The fall was as much as 32% since the peak of USD 12.6 billion in 2017.

Policy action

Realising the gravity of the situation, India’s environment ministry in December announced forming a high-level inter-ministerial Apex Committee for Implementation of Paris Agreement (AIPA).

“The purpose of the AIPA is to generate a coordinated response on climate change matters, which ensures that India is on track to meet its obligations under the Paris Agreement, including its Nationally Determined Contributions (NDCs),” the ministry said in a statement.

“Climate change must be fought not in silos but in an integrated, comprehensive and holistic way,” Prime Minister Narendra Modi said at the summit of G20 nations on November 22. “The entire world can progress faster if there is greater support of technology and finance to developing nations”.

Policy can play in coming up with climate solutions when calamities strike, Singh said. “One of the most critical aspects of managing climate risk is to understand the portfolio exposure to different sectors that are vulnerable to climate hazards and have both physical and transition risks. The next step is to disclose the exposures to these risks to larger stakeholders,” he said.

“Once you start understanding and disclosing climate risk, then managing them and mainstreaming them follow.”

In the absence of any government mandate or push from the central bank, financial institutions have not been proactive in reporting exposure to climate risks or their exposure to different sectors that are vulnerable to climate hazards and risks, Singh said.

Mainstreaming climate risks

Government guidelines and regulations can push financial institutions to report their exposure to climate risks and make them act to mainstream climate risks in their portfolios and

operations.

Government institutions such as the National Disaster Management Authority (NDMA) need to set up appropriate and dedicated climate collection data mechanisms in the country and make them available to relevant stakeholders. “These will act as inputs to scenario analysis,” Singh said. “Legitimate inputs are essential for accurate predictions and will greatly aid investors to initiate climate action.”

Climate change could cost businesses and investors across the world over USD 1.2 trillion over the next 15 years, the Intellicap report said. The private sector has a role in mitigating this, Singh said.

There has to be efforts to create climate risk indicators and modes of collecting relevant data required for climate risk modelling, which could be provided for consideration of everyone, he said. Insurance companies and credit rating agencies, for instance, could share knowledge and experience in managing climate risk owing to the nature of the business they are involved in, where it is essential to factor all important risks.

In 2015, a private sector led initiative called Climate-related Financial Disclosures (TCFD) was set-up in India to help develop voluntary, consistent climate-related financial risk disclosures for use by companies in providing information to investors, lenders, insurers, and other stakeholders.

TCFD recommendations are intended to help build considerations of the effects of climate change into routine business and financial decisions.

Responsibility and foresight

“Their adoption can help companies demonstrate responsibility and foresight. Also, better disclosure will lead to more informed and more efficient allocation of capital,” Singh said. “Overall, 1,500 organisations globally, including over 1,340 companies with a market capitalisation of USD 12.6 trillion and financial institutions responsible for assets of USD 150 trillion have expressed support for TCFD recommendations.”

Akin to the growth in the number of organisations supporting TCFD, investor demand for companies to report information in line with the TCFD recommendations has also grown dramatically, he said.

As part of Climate Action 100+, more than 500 investors with over USD 47 trillion in assets under management are engaging the world’s largest corporate greenhouse gas emitters to strengthen their climate-related disclosures by implementing the TCFD recommendations.

In addition, many large asset managers and asset owners have asked or encouraged investee companies to report in line with the TCFD recommendations and reflected this in their investment practices or policies.

Along with recommendations, the task force has issued guidance on two topics — conducting climate-related scenario analysis and integrating climate-related risks — into existing risk management processes and disclosing those processes.

Such metrics would help financial institutions understand the process of integrating climate risks along with understanding from other organizations that are part of TCFD recommendations, Singh said.

November 25, Mumbai –  Recently Vikas Bali , CEO, Intellecap was interviewed by Hindu Business Line for  an article titled ‘Why digital financial inclusion is still an unfinished project ‘ on how the biggest challenge in the adoption of digital payments has been the lack of awareness and trust.
Gajraj, a farmer from Madhya Pradesh, has started using digital payment platforms. Nearly 75 per cent of his financial transactions are done either through online bank transactions or via applications such as Google Pay and Paytm. The only time he uses cash is to pay the daily wage labourers working on his farm. “Most of these daily labourers working for me are illiterate or do not have access to smartphones, that is why they are much more comfortable receiving and spending money in cash,” he says.
Daya Ram, a farmer from a village near Bhopal, Madhya Pradesh, says he doesn’t use digital payment apps or other online services because “I don’t know how to read too well….and, therefore, I am hesitant”.
Ram and labourers working for Gajraj are two examples of the challenges being faced when it comes to the financial inclusion of India’s rural population.

Obstacles faced

Recently, global social-policy data analytics firm IDinsight, set out to explore the obstacles faced by migrant communities, particularly women workers in the apparel manufacturing industry, in using digital payment services for sending remittances. The women were trained in using the BHIM app to send remittances via mobile phones. However, there were obstacles to onboard these workers, including lack of access to smartphones, reliable internet, and phone-banking account linkages, among others.

Sonakshi Sharma a Senior Manager at IDinsight, says: “Our findings illustrate that the migrant workers we studied are particularly vulnerable to these issues. However, it would be hard for us to extrapolate this to other populations.”

A number of policy initiatives have been taken over the last six years to drive financial inclusion through digital platforms. Pawan Bakhshi, India Lead of Financial Services for the Poor, at Bill and Melinda Gates Foundation, says: “India’s journey towards the accelerated induction of members of poor and marginalised communities into formal financial inclusion began with Aadhaar…..With the coming of Aadhaar, E-KYC has driven down the cost by almost 99 per cent, therefore, technology and the digital age have reduced the costs of entry into the system.”

Now, an index for digital payments as online transactions grow rapidly

A recent report facilitated by USAID titled, ‘India Digital Financial Inclusion’, found that since 2014, key events have occurred in the Digital Financial Services ecosysem in India to further drive digital financial inclusion. This includes the PMJDY drive and onboarding over 330 million new bank account holders into the formal system; Jan Dhan, Aadhaar, and the induction of UPI and mobile wallets into the ecosystem have contributed in creating financial infrastructure. However, the report also emphasises that despite the establishment of infrastructure, payment services also face the ‘last-mile problem’, where certain obstacles unique to certain sections of the population still exist.

For instance, migrant worker Arun Sharma – who hails from Bihar and works in construction sites in the Delhi NCR region – lost his proof of identity years ago. Now, he is unable to use digital payment services or set up a bank accountto transfer remittances to his family. Instead, he prefers to take cash with him when he visits his family every two years or transfer money to his brother-in-law’s bank account using an over-the-counter agent. “Someone told me I need the sarpanch’s signature to get my Aadhaar made again, and also that since I am not from here, I can’t make it here in Delhi..I am not too sure, I haven’t looked into it too deeply,” says Sharma.

Why investors prefer large players in the online payments sector

IDinsight provides training for organisations working with migrant workers to support the members of these communities to onboard them onto digital payment systems. Kiran, a migrant worker, says: “My employers (Shahi Exports) helped me create my account a year ago when I joined; since then I have been doing most of my

digital transactions using Phonepe and send digital remittances using my phone as well.”

USAID also partnered with organisations such as Intellecap to conduct pilot activities in rural and urban settings. Intellecap implemented pilot activities in Maharashtra, Odisha, and Jharkhand, where the adoption of digital payment services across three value chains – dairy, food and beverages and poultry – was studied.

One of the biggest concerns cited by these entrepreneurs is access to cash. Vikas Bali, CEO of Intellecap, says: “The immediate feeling for the participants was that once they had money in their mobile phones, how can they convert this money back into cash? Establishing trust within these communities, making them believe that they can convert mobile money to cash whenever they want through the BC network or Kirana stores, is critical.”

For Daya Ram, the hesitancy to use digital payment services is not just related to his illiteracy; he is also afraid about the safety of his money on these applications. “I have not used these services ever before, I don’t know what I will do if I lose my money on these applications..Who will I go to?”

Security and trust

Industry leaders in this ecosystem also recognise security and trust to be a probem. Karthik Raghupathy, V-P, Strategy and Business Development, PhonePe, says the biggest challenge in the adoption of digital payments has been the lack of awareness and trust. First-time users often think that digital payments are complicated and are also worried about the safety of transactions. PhonePe has undertaken a massive user awareness exercise to highlight the safety of digital payments as well as the ease of using digital payments for everyday use cases. Vikas further adds: “While the digital ecosystem is progressively creating new alternatives and solutions to make these financial products more inclusive and easily adaptable for all sections of the population, a new challenge that can emerge is what will happen in a scenario when transactions fail – especially in case of new users. If transactions fail for a multitude of reasons, such as net connectivity, mistakes in using an app etc, we need to understand how that pushes back the progress that we have made so far. If people lose confidence in digital transactions because of such issues, it will be much harder for us to convince them to adopt these payment systems again.”

Monday, November 9^th  – Intellecap Circular Apparel Innovation Factory in partnership with Circular Design Challenge an initiative of R|Elan, United Nations Environment Programme and Lakmé Fashion Week, presented the second edition of  Circular Changemakers 2020, in a digital-first format, on Day 2 of Sustainable Fashion Day of LFW, where circular startups presented and showcased their ideas.

The coverage was basis a talk with the finalists of the second edition of Circular Changemakers by LFW 2020 about the concepts behind their unique start-ups and how they are planning to change the industry with their own perspective of Circular Fashion via this platform.

Six start-ups recently presented their ideas promoting circular fashion in the second edition of the Circular Changemakers which started in 2019.

Presented by Intellecap’s Circular Apparel Innovation Factory (CAIF) in partnership with Circular Design Challenge, an initiative of R|Elan, United Nations Environment Programme and Lakmé Fashion Week, the programme took place on Day 2 of Sustainable Fashion Day at LFW 2020. Infinichains, BigThinx, Phabio, Twirl Store, Desi Hangover and Paiwand Studio were chosen to present their business models to an esteemed panel after having gone through a rigorous online enterprise bootcamp to fine tune their business models, financial models and presentations.

The investor & strategic partner panel comprised industry experts namely, Disha Gandhi, Associate Director, Aavishkaar Capital, Marieke Lenders, Head – Reweave Program, Enviu, Vineet Gautam, CEO, Bestseller India and Pinar Ademoglu, Investment Director, Sagana Capital. The changemakers undertook a rigorous bootcamp by CAIF which focused on three modules, Capital Raising, Business & Financial Modelling and Investor Pitch Preparation, delivered by industry experts.

Darshana Gajare, Lead Sustainable Fashion at IMG Reliance, said, “This year, we have a very promising cohort of enterprises doing some incredible work across the value chain”: Our vision is to enable strategic partnerships, through the online bootcamp curated by CAIF, we could already see great synergies for these start-ups to work together,” while Vikas Bali, CEO, Intellecap, chimed in, “Circular Changemakers Program is a great example of a platform that can provide both investment support and facilitate strategic collaborations for innovators with circular solutions to help them scale.”

Each of these enterprises works at different segments of the value chain aiming to make fashion truly circular. A talk with the Circular Changemakers sheds light on their prospective business models, their utility in different avenues of the fashion space along with their aspirations of leveraging this platform to propagate their business in the industry.

Paiwand Studio

Launched in 2018 as an upcycling textile studio by Ashita Singhal, Paiwand believes in adding value by repurposing waste garments. With willingness to help designers who lacked time and resources to repurpose waste materials, Ashita explored weaving with textile waste to produce upcycled yardages for apparel, which later led to her winning an International Business Grant of US $ 25,000 by Laureate International Universities Network, USA to support her social enterprise, Paiwand Studio.

“Following a B2B model, we collaborate with design houses and fashion brands and help them upcycle their textile waste through various handcrafted techniques like handloom weaving, patchwork, knitting, embroidery and felting,” says Ashita, continuing, “We then sell the fabric back to the fashion houses at a higher price so that they can create an exclusive upcycled sustainable product range for their respective clientele, opening up a revenue channel for brands collaborating with them.” In their B2C model, Paiwand designs upcycled range of products including apparel, home textiles and accessories retailed through multi-designer stores and online platforms.

Twirl Store

Twirl store works to solve the endless issues of excess and unwanted clothing. Sujata Chatterjee, Founder of the start-up, avers, “At Twirl.store, customers are urged to send their unwanted clothes, and in return are rewarded with points which they can redeem to buy new things from our online portal www.twirl.store. All the unwanted clothes that Twirl receives are either donated or upcycled to form fabrics for new collection.”

Adding to this, the start-up employs rural women to upcycle the fabric, thus giving them a source of livelihood. Their offerings include bags, accessories, gift items etc. retailed through omnichannel portals. “We also hope that after being a Lakmé Fashion Week’s Circular Changemaker, more people will join the Twirl Circle and actively send unwanted clothing as well as embrace our handcrafted, upcycled products,” says Sujata.

BigThinx

BigThinx was Chandralika Hazarika and Shivang Desai’s idea to aid customers who face issues during online shopping due to incorrect sizing, leading to returns and further losses incurred by businesses. Chandralika says, “Realising the problem, we started working on our AI-based products in 2017,” while Shivang elucidates, “The business model is a Software as a Service (SaaS) B2B model working with products that include 3D body scanning to help one find the perfect size in any clothing from any fashion brand, and personalised digital avatars to try on any clothing virtually and see how it looks, fits and drapes before purchasing.”

Chandralika & Shivang, Founders, BigThinx

These products are API based and can easily integrate into any existing website or app, or even in-store via interactive displays. Consumers can carry out body scans or create avatars to instantly find their size and browse inventory of thousands of items with just a click of a button. Retailers benefit from an average 20 per cent increase in order values, 40 per cent decrease in product returns and up to 250 per cent greater conversion rates. “Our suite of products – mobile body scanning, digital twins, virtual showrooms, and virtual fashion shows – significantly contribute towards reducing emissions and apparel waste and saving freshwater,” says Chandralika.

Desi Hangover

Inspired by the craftsmanship of the artisan communities across small villages of India, Hitesh Kenjale along with Abha Agrawal and Lakshay Arora launched this start-up in 2014, to share each of their expertise globally. “Our business model is extremely simple, and glocal as we say – Handcrafted in India for the world,” expresses Hitesh, while Abha adds, “We attempt to tell the story of our shoemakers, based in a small village in Karnataka. We deliver conscious fashion for your feet.”

Hitesh Kenjale, Abha Agrawal and Lakshay Arora, Founders, Desi Hangover

The start-up upcycles leather in the production village, treated using natural ingredients like turmeric and the barks of the Sal tree, and later used to handcraft ‘Desis’. Their mission was to develop rural craft clusters through social innovation, ensuring secure and sustainable livelihood for artisans in India.

Hitesh maintains, “Through LFW’s platform, we wish to send across a global uniform message to fellow brands, customers, and anyone else concerned – that fashion can be healthy, harmless, and yet beautiful.”

InfiniChains®

After working closely with Shreyaskar Choudhary from Pratibha Syntex about challenges in the textile industry around traceability and sustainability reporting to brands, Parth Patil, Ravi Agrawal and Jitesh Shetty launched the blockchain start-up InfiniChains®. “We provide a traceability dashboard to the brands that allows them to visualise the supply chain for sourced products, check claims associated with them and inspect the origin of the raw materials,” explains Parth, while Jitesh says, “We charge the brand an annual licensing fee for the use of our platform that is proportional with the volume of products they are tracking on our system.”

Parth Patil, Co-Founder, Infinichains

For the suppliers and vendors of the brands, there’s no cost to use the system and they get their own dashboards and login from where they can submit data for the supply chain stages they are responsible for and also get visibility into their upstream supply chain. Through LFW, the start-up wants to work with prospective partners to understand the challenges that stand in the way of rapid adoption of sustainability practices and engage brands by sharing their expertise and technology to become 100 per cent sustainable.

Phabio

Sukanya Dikshit started Phabio with the zeal to curb the environmental impacts posed by single use plastics by working on a cutting-edge technology for low cost production of an exact replacement of plastic. This material is a biopolymer known as PHA (polyhydroxyalkanoates) and is made from microorganisms using waste organic byproducts from various food and beverage industries. It is 100 per cent naturally biodegradable under home and marine composting conditions. Their business model involves direct sales of bioplastic resins to product manufacturers and also, licensing of the technology to third parties interested in taking up production.

Founders of Phabio

“We want to help the world reimagine and redefine plastics with us. Not everything that is plastic needs to remain in the nature forever and the Circular Changemaker programme is a hopeful start,” Sukanya says.

To read the entire story , Click Here

Vineet Rai, Founder and Chairman, Aavishkaar Group recently undertook a road journey , travelling across states and traversing over 4500 Kms. The thoughts penned down are from this travelogue.

Some of you have repeatedly asked me to pen down my thoughts on the journey I took. Here is my note on what I did , What I saw and What did I make out of the travel.

I have been driving on India roads for long. I have a reasonable experience of driving around the globe including most of Europe and USA. Shri Atal Bihari Vajpayee brought in the idea of really high quality road infrastructure, the effort slowed down marginally in between but post 2014 the work on National Highways will make all Indians proud.

During my 4500 KM drive, I drove on multiple National and State highways  and they are as good as anything I have seen in Germany, France and Holland or USA.

As we drove from Mumbai and stopped for breakfast, it was clear that roadside activities are pretty much back to normal and the roadside vendors sales was almost at the same level as it was Pre-Covid days. Now this is not uniform and one must see this response from the road side vendor with a pinch of salt but the fact is return to normal seems not abnormal anymore.

As we moved further and further away from Mumbai it seemed the fear of Covid 19 vanished. Almost 100 KM from Maharashtra -MP border the Visarjan ( The deity/ goddess is taken to a pond or river and she is let go to re-emerge next year) festivities were getting very public and in your face.

As I drove into MP, and it was the day after Dussehra ( festival of victory of Good over Evil), the festivities hit a crescendo and we were caught into massive visarjan traffic jams in Sagar ( erstwhile education power house ) and Damoh ( Small city in MP State) where we were jammed for hours as 30 -40 tractor trolleys carrying idols for visarjan along with 1000’s of devotees blocked our way.

We drove into Varanasi and Google map took us to the newly being laid Six lane highway from Varanasi to Gazipur & Gorakhpur.  The highway was an amazing contributor to infrastructure development  coming through in Purvanchal.

Those uninitiated with Eastern UP, Varanasi and east of UP is far behind in development even within UP ( Which is agrarian state). The incumbent government has unleashed some serious infrastructure development backed by some outstanding work done by local Member of Parliament  Manoj Sinha who despite the good work lost the elections recently. Good work does not necessarily get your votes is clear.

What used to take two hours from Varanasi was achieved in 40 minutes and this is when the road was only 70% complete. I am excited to see the progress and change on the ground.

Reached my village and found that the only one wearing the mask was Mr. Covid. Rest of Village folks did not even remember corona except occasional mention from the hard lockdown and how it was difficult in the past. My take away from the ground is that while Covid 19 has not gone but its debilitating fear from the hinterland has completely gone. The economic activity is back to normal and there is no real fear amongst people.

I visited Chief Medical Officer of Gazipur. Aavishkaar Foundation had provided support to the CMO office with Mask, PPE Kits, and Medical Equipment’s. He was grateful and thankful. He also had suffered from Covid and was very careful with both mask and gloves in place. He did tell me that Gazipur district reports 10-15 case daily but things are  under control. He do understand that people are not fearful and hence careless but suggests that this may be  largely because of very low mortality rate and quick recovery in most cases except where co-morbidity is high.  It seems the fear of the disease from the mind of people have receded.

Driving to Diara – Also known as Floating Sands of Ganges … My ancestral lands. I would be sharing a video that would show case some fun stuff I did during my visit including driving to the floating sand islands or Diara  with River Ganges flowing on both sides. The rivulet on my side of approach had dried down so I could drive to the island. Pristine, beautiful and peaceful and it was amazing to be served bati-chokha ( the traditional food on your land by the loyal collogues who live and manage the lands). I had the urge to give some work out to my father’s old gun so few shots in the air were also fired for fun sake

I was supposed to drive to Samastipur but had to cancel that as Bihar Elections were on and that means a big black vehicle would be stopped and searched by police quiet regularly for Cash, Liquor or any other contraband. A 6 hour ride may become a 12 hour ride one way and So I dropped the idea. Instead drove to Prayagraj ( Erstwhile Allahabad) passed the Sangam, the holy place where the Ganga, Jamuna and Saraswati meet and drove via Kanpur to Noida . Road construction work made life difficult to drive from Prayagraj to Kanpur but beyond Kanpur it was an exceptional drive again.

My drive time from Mumbai to Gazipur was 22 hour nonstop despite the visarjan Jam in Sagar and Damoh. My drive from Noida to Mumbai was another 22 hours and we drove through Agra and made two stops as my father was with me. Overall 4500 KM were driven in driving time of around 52 hours which again reflect not just our driving stamina but the exceptional condition of Indian roads

My Conclusion – Covid 19 exist and would remain so but Hinterland in India has moved on. There are many factors but the most important one is the acceptance and adjustment to the fear of Covid. My other take away is that unlike cities where vertical construction and interdependence of social hierarchy with each other ( Rich and Maids) means you are interacting with far more people on a normal day than a person living in rural India does. Also the chances of you interacting with someone you do not know at all in Urban India is exceptionally high compared to Rural India and that explains lower transmission.

What was quite obvious is that social distancing is way of life in Rural India. The other observation is that most dense parts of rural India are sparse compared to least dense part of urban India and that explains why despite lack of masks the rural spread of Covid appears to be much less . One can always explain all what I said by saying there are no tests being done and hence we do not really know if any of what I am saying makes sense.

My prediction is that most of the non-Metro India would be back to normalcy as soon as train start and small trade picks up. Agriculture is doing well, Microfinance has stumbled as people earning capacity is hit, but my reading is that in three months’ time Microfinance would make a roaring comeback as people see business return.

Finally there is stress in Urban India on earnings but Rural India is not as stressed and is able to deal with the pandemic much better.

Dear All

We are extremely happy to inform you that Business India , one of India’s highly respected media house , has given an extensive 8-page story on the Aavishkaar Group in the latest issue of the Business India (Print Magazine  + Online) (Issue dated September 21-October 4, 2020, page number 34 to 41)

Titled, ‘Leading from the front‘ with sub-headline as ‘The Aavishkaar Group has created a distinct leadership position in the impact investment space‘, this is the biggest corporate story on the Group for the year, covering our Group’s journey, covering all the key leadership, portfolio clients as well as views from the industry veterans like Vijay Mahajan on the Group.

The Mumbai-based Aavishkaar group has come a long way since it began its journey in 2001. Started with a seed capital of Rs5,000, the Vineet Rai-led group has emerged as one of the leading players in the impact investing space, managing assets of around $1.1 billion. The group is a leader in developing the impact ecosystem in India and is also one of the leading players globally.

A pioneer in taking an entrepreneurship approach towards development, it has a presence not only in India but also in underserved South East Asia and Africa regions. Backed by 7,000 employees present across India, Indonesia, Bangladesh and Kenya, the rural-focused Aavishkaar group has invested in 70-odd companies working in the social space and claims to have impacted the lives of 110 million people (55 per cent of whom are women), and created over 300,000 jobs and livelihoods.

Started as a one-entity venture capital organisation in the impact investing space, with its first fund ‘Aavishkaar’, the group has become a complete development ecosystem, currently offering products and services across equity-led impact investing, debt funding, advisories and research, and financing to SMEs. The group is a leader in all these businesses for the impact investing space.

Its flagship entity, Aavishkaar Capital, is a pioneer in equity-led impact investing in high risk, high impact businesses, while Arohan is one of India’s largest technology-led financial inclusion platforms; Ashv Finance (earlier intelleGrow) is a specialised lender to small and growing businesses and Intellecap is a thought leader and advisory business with a focus on sustainability.

Intellecap’s common action platform, Sankalp Forum, is one of the largest global inclusive development platforms for entrepreneurs and investors and brings together the ecosystem to shape the way markets work for delivering the United Nations-set Sustainable Development Goals (SDGs) by 2030. So far, Intellecap has conducted 23 Sankalp Summits: 11 in India, seven in Nairobi, three in Jakarta and two more in other countries.

Intellecap has delivered over 500 global engagements across over 40 countries as well as syndicated investments of over $500 million. Select clients of Intellecap include the USAID, Rockefeller Foundation, World Bank, Ford Foundation, The Hans Foundation, Doen Foundation, GIZ, DFID, Hindustan Unilever, P&G, International Finance Corporation, Asian Development Bank and the Michael and Susan Dell Foundation.

In fact, the Aavishkaar group has turned into a complete development platform which has a whole gamut of solutions for the impact investing landscape which is now gradually taking shape in India and is all set to commence its next growth phase where the group is looking to take its assets under management (AUM) to around $5 billion by 2025 and $12 billion by 2030.

In the process, Aavishkaar aims to help create over 10 million jobs and livelihoods in the next five years.

While in the initial years, the group struggled to raise funds and scale up its operations, the last decade or so have been quite encouraging as its AUM has risen sharply from around $25 million in 2010. With the impact sector gradually taking some shape, global investors have also shown a keen interest to be part of this success story. In the last few years, four global investors, Triodos Investment Management & Shell Foundation, Nuveen (TIAA) and FMO Bank have picked up 49 per cent in Aavishkaar’s holding platform, investing around $100 million.

Triodos Investment Management, the investment arm of European lender Triodos Bank, has also backed the group’s SME lending entity Ashv Finance, in which impact investment firm Omidyar Network, US-based fund manager Developing World Markets, community development financial institution Calvert Foundation, Overseas Private Investment Corporation (the US government’s development finance institution) and the Michael & Susan Dell Foundation (a philanthropic organisation started by the founder of technology company Dell) are also investors.

The group has played a large role in creating a landscape of social entrepreneurships and has built a strong organisational structure led by a core team comprising the best brains from across industries. The Aavishkaar group has become a case study in many business institutions, including Stanford Business School and IIM-Ahmedabad.

Creating livelihoods

Aavishkaar’s investee companies include, among others, Equitas, Suryoday Small Finance Bank, Utkarsh Bank and CreditAccess Grameen Ltd in the financial services space; INI Farms (now India’s largest exporters of pomegranates and bananas), AgroStar (one of the largest agri-tech companies), and Ergos (agri warehouses in rural India and working in Bihar) in the agri space; Ahmedabad-based NEPRA in waste management; fintech entity Chqbook, and GoBolt, an express supply chain company. Importantly, in most of these highly successful cases, Aavishkaar has been the early investor, actively helping them chart out their growth journeys

“The Aavishkaar group is a pioneer in the impact investment space in India. They did something that very few could have thought of doing at the time. In fact, Vineet has played a commendable role in building up this entire ecosystem in the country. He has a very dynamic personality and doesn’t hesitate to take risks. He can sense opportunities and he is one of the first to get there. Despite all sorts of challenges and headwinds, he has relentlessly worked towards creating this platform which today has become synonymous with the impact ecosystem,” says Vijay Mahajan, CEO, Rajiv Gandhi Foundation and the director of the Rajiv Gandhi Institute for Contemporary Studies.

It was Mahajan whom Vineet Rai, the founder and chairman of the Aavishkaar group, approached with the idea of starting Aavishkaar as a micro venture fund, to kick-start the whole thing. Mahajan, who was then running the Basix Social Enterprise Group, was aligned with Rai on the idea of establishing a social enterprise which could serve needs which neither the market nor the government were able to. After Aavishkaar was formed in 2001, Mahajan was a member of its investment committee for nearly three years.

“Aavishkaar has emerged as a complete platform through lots of learning over the years. It has proved that real impact can also be achieved without compromising on the commercial aspect and that too, in a sustainable manner. The group’s ability to identify needs and develop products and solutions as per local needs is commendable. Vineet knows how to attract talent and provide the alignment that helps them work more as entrepreneurs,” says Akbar Khan, CEO of CreditEnable India, a 2017-founded entity which operates an entirely digital and curated marketplace for SME finance.

Khan was the CEO and board member of the group’s SME lending business, intelleGrow (now Ashv Finance) for two years, between 2016-18. Prior to his role at Aavishkaar, Khan spent five years at General Electric, where he was managing director and head of corporate development/M&A for GE South Asia and MENAT.

“Aavishkaar was started with the objective of providing capital to ideas that can create jobs and livelihoods in rural India. I wanted to create an ecosystem of social entrepreneurs who could carry out my vision. The idea was to use the power of human thinking which was talent and capital, to harness the entrepreneurial wheel of Indians to solve India’s problems. The big picture was that I wanted entrepreneurs to work for India and not just for money,” says Vineet Rai, 49, who while setting up his first fund also quickly went on to put up Intellecap (short form of intellectual capital) in 2002, the very next year after the formation of his equity financing business, Aavishkaar Capital. The idea was to bring capital and talent on the same platform to create a vibrant ecosystem of social entrepreneurships that could eventually create jobs and livelihoods in rural India.

From Gian to Aavishkaar

The thought process leading to this occurred to him when he was heading Grassroots Innovations Augmentation Network (Gian), an Ahmedabad-based incubator set up by the Gujarat government to help farmers convert their ideas into sustainable businesses.

His journey to being appointed the CEO of Gian in 1998 was quite an interesting one. He was from UP, but grew up in Rajasthan, moving from city to town, wherever his father’s work as a hydro-geologist for the government took him. Inspired by Maharana Pratap and Chandrashekhar Azad, he grew up watching soldiers patrolling the borders of Rajasthan, and his only ambition then was to join the Armed Forces. He passed his written exams but failed the interviews every time. That was when a friend suggested that he should try for the Indian Institute of Forest Management in Bhopal.

After graduating from IIFM, he joined Ballarpur Industries and was posted in the forested lands of Odisha, from where the paper-maker sourced its raw material. He spent a little over three years on the job, fending off wild animals while managing the forests. It was while working in Odisha that he saw extreme poverty at close range. The levels of deprivation, infant deaths and malnutrition were appalling.

While being posted in Odisha, he married Swati, who had been a year junior to him at IIFM. But when the Rais were expecting their first child, his wife (who is also co-founder and actively sits on the board meetings) insisted he found a safer job away from the forest. “In fact, she gave me an ultimatum to move to a more civilised place, as our immediate neighbours were more than a kilometre away,” he says.

He applied for various positions, but found that nobody wanted someone with his background. That’s when he found out that Professor Anil Gupta of IIM, Ahmedabad, was looking for a research assistant for a project on biodiversity. Rai moved to Ahmedabad, took up the job, but realised after a year that this was not what he was looking for.

He applied to Gian, expecting the post of a manager and instead they made him the CEO. Here, he explored how innovations carried out by farmers on a small scale could be converted to good business. He realised that nurturing an innovation into a full-fledged business requires an entrepreneur, not an innovator, in the lead and since that entrepreneur was taking a risk, he required risk capital. The biggest challenge was not in finding the entrepreneur or the innovation but in providing the risk capital but that, coupled with high quality talent, could build businesses that would, as he put it, make poor people rich.

“Moreover, it also became clear that change cannot happen if capital and talent together are not taken to rural India. And that’s how the idea of Aavishkaar as the first venture fund for rural India and Intellecap as a repository for talent was born,” reminisces the Aavishkaar chief.

He quit the job and put up a venture fund to serve rural India. Being a forester, his problem was that he did not know how to raise money. Finally, through the connections he had developed while at IIM-A and Gian, he presented his ideas to a handful of expat Indians living in Singapore and managed to raise SG$100,000. Most of these people were from IIM-A.

These included Anant Nagesan, currently a part time member of the Prime Minister’s Economic Council, Arun Diaz, a veteran entrepreneur and investor who would later become a key advisor and partner in Rai’s newly formed venture capital fund, and Jayesh Parekh, who is famous for bringing Sony TV to India.

Providing non-financial support

In October 2001, the fund was formally named Aavishkaar (Hindi for ‘invention’) and in March 2002, as per his vision of bringing capital and talent together, Rai set up Intellecap, borrowing Rs1,00,000 from his wife. The idea was to provide non-financial support, including research and consultancy services, to rural enterprises and help them scale up.

While he formed the fund with the little money he raised in Singapore, he struggled to raise further money. In fact, it took him almost five years to raise the first Rs5 crore. His not being a finance guy was an impediment as it was difficult to convince investors; so was the idea (radical at the time) of using the venture capital method to serve the rural, low-income market.

Like Aavishkaar Capital, Intellecap, too, struggled initially. By 2005, Aavishkaar had managed to raise only Rs5 crore and Intellecap’s turnover was around Rs50 lakh. That’s when Rai thought of bringing in some changes. By 2005, the microfinance market had started getting some traction and Aavishkaar also decided to invest in the microfinance space as well. Moreover, Intellecap also rode the wave, advising and eventually incubating institutions like Utkarsh, Suryoday Small Finance Bank, Grameen Koota Financial Services and a few others. Today, Intellecap advises not just microfinance institutions but a whole lot of businesses from various sectors.

Between 2005 and 2007, Aavishkaar Capital expanded to Rs70 crore of fundraising and Intellecap had grown from Rs50 lakh to Rs6 crore. “Besides, we were slowly and gradually explaining to people that we were trying to make a developmental impact while making money for them. In other words, we were able to showcase that one could do business to create an impact and that was getting noticed not just in India but globally,” says Vineet Rai.

By now Aavishkaar had money but was not able to find ways to scale its business. Between 2007 and 2010, Rai and his team struggled to deal with the idea of building a scalable business model. He realised that he had to make companies that would make a difference in the lives of people and then make money, which was different from philanthropy or just doing business. Moreover, this approach, he felt, would also help him attract reputed professionals, something he felt was paramount to achieve the desired scale.

During 2009 and 2010, both Aavishkaar and Intellecap ramped up their talent pool, roping in reputed bankers, consultants and other senior industry people from across industries and geographies.

This new team (which included, among others, Manoj Nambiar, the head of the group’s microfinance business and Sushma Kaushik, one of the partners of the group’s flagship equity financing business) with good industry experience, started changing the group’s positioning in the market from a young and ambitious entity to a potentially emerging entrepreneurial one that was trying to make an impact and also create value.

Nambiar, who is currently the Managing Director of Arohan is one of the most respected and known leaders in the microfinance business. Before joining the group, he was based in the Middle East and was looking to return to Mumbai where his parents were based. He wanted to work for an organisation which respected who he was, and with people who could work with him and bring in new ideas. He found Rai’s offer of mutual trust interesting, although he joined at a significantly lower salary than what he was drawing in his earlier organisation. It was the same with all the other people.

“All these people were talented, with good experience and could have worked in big organisations with hefty salaries. Instead, they joined us because of a common goal to create a real impact in the lives of people in a very sustainable manner,” states Vineet.

By 2010, the total AUM of the group grew to $27 million with 80 employees, but it still lacked the desired scale. By then the group had incubated a large number of microfinance institutions and invested in around 25-odd companies like Utkarsh, Suryoday, and others. However, in 2010, the microfinance crisis hit both Aavishkaar and Intellecap. One of the learnings for the group from the crisis was to have its own microfinance institution and expand its lending beyond Aavishkaar Capital.

The biggest risk

In 2012, even though the microfinance sector was still recovering from the crisis, the Aavishkaar group took one of its biggest risks and bought over the Kolkata-based microfinance company, Arohan Financial Services for Rs12 crore. Even though Arohan was struggling, the group saw a good opportunity in the form of Arohan delivering on its vision of building a microfinance institution in low income states like Bihar, UP, Jharkhand and Odisha. Nambiar, who joined Rai in Mumbai, currently manages Arohan and is based in Kolkata. He is also the chairman of the microfinance industry body, Microfinance Institutions Network or MFIN, and is on the boards of many other industry institutions.

With its vision to bridge the opportunity gap for the three-billion underserved population globally, the group is driven by its mission to create livelihoods and jobs as also empower underserved households and small businesses in a sustainable manner.

By now, the group had a total AUM of $120 million. It continued to grow slowly until 2015 when Aavishkaar decided to set up a new fund in South East Asia, and became the only Indian fund manager with an international fund. By 2015, the group expanded its total AUM to around $200 million, but the scale and momentum were still missing. But by now more and more people had heard of the group and started joining them. Among the key people who joined the group were E.N. Venkat, partner from Lazard who worked at setting up the group’s international fund in South East Asia. It was Venkat who realised something was missing, which resulted in a lack of the required momentum and scale of the group.

While Rai was connected to all the four businesses of the group, none of the businesses were talking to each other and were operating in isolation. In other words, though the group was small, the structure was quite complex. Rai realised this and asked the core team to work on a process that could bring all the entities onto a single platform so that the group, as a holding company, could directly hold all the key assets. It also needed $25 million in order to execute this new structure. In 2017, the group raised this money from both Shell and Triodos.

Triodos Investment Management, the investment arm of European lender Triodos Bank, invested $15 million on the holding company level, while Shell Foundation, an independent charity established by the Shell Group, contributed $10 million to this equity-led funding.

This was followed by two more rounds of investments at the holding company level by global investors. In 2018, Nuveen, the investment management arm of diversified financial services giant Teachers Insurance and Annuity Association (TIAA), invested about $32 million to pick up 20 per cent stake in the group. Nuveen had earlier invested in the group, but as limited partners in its funds. “The Aavishkaar group is an excellent fit within our impact investing approach, which, among other goals, focuses on ways to make basic services available for low-income and underserved people around the world while also providing return opportunities for our clients,” said Vijay Advani, CEO of Nuveen, on the investment. As a part of transaction, Advani joined Aavishkaar’s board. Nuveen, which was acquired by TIAA in 2014, manages assets of over $950 billion and is spread across 16 countries.

In the third phase of its consolidation, which started in 2010, the group, in September last year, raised $37 million from the Dutch Entrepreneurial Development Bank, FMO, which also had participated earlier as a limited partner in Aavishkaar Capital. “We will work with the Aavishkaar group to strengthen its institutional foundation so that they can focus on what they do well. Vineet Rai and his team have a terrific record of finding innovative solutions to help solve many of the key social and environmental issues of our day. We look forward to growing our relationship with these world-class social entrepreneurs,” says Peter van Mierlo, CEO, FMO.

With all these investments in place, the group, which also utilises part of the money to strengthen its ownership in its subsidiaries, plans to pursue its vision and expand its business to other parts of Africa and South East Asia. Aiming to take its total AUM up to $ 5 billion by 2025 and $12 billion by 2030, it is also looking to ramp up its capabilities in a significant way.

“We now have all the requisite structure and competencies to achieve our goals in the expanding impact ecosystem. While India will be our primary market, we want to replicate our success story in other locations in Africa and South East Asia. In fact, we have already forayed into some of these countries and are now looking to ramp up our overall overseas efforts,” says Anurag Agrawal, COO, Aavishkaar Group, who along with Rai, Chairman, Aavishkaar Group; Swati Rai, Director, Aavishkaar Group; Kaushik and Tarun Mehta, Partners, Aavishkaar Capital; Nambiar of Arohan, Nikesh Kumar Sinha, CEO, Ashv Finance and Vikas Bali, CEO, Intellecap, are the promoters (holding 51 per cent stake in the holding company) and together form the strong leadership team which is going to drive the scale, going forward.

Setting a goal

The group has already put up a roadmap to achieve the set goal of $12 billion AUM by 2030. In phase I, which aims to achieve $5 billion by 2025, the group needs to create five times more jobs and livelihoods than today.

Around the same time, the group also started another entity called IntelleGrow, to experiment and provide venture debt to early stage social or impact enterprises with an investment of Rs2 crore and some financial assistance from the Shell Foundation. Besides, it also set up another NBFC MFI called Intellecash which is now part of Arohan. That was how the second phase of the journey started after 2010 as the group was looking to scale up its business.

“The group aims to have at least 20 million direct microfinance customers through Arohan, lend to thousands of micro, small and medium enterprises through the new entity Ashv, and Aavishkaar should be able to raise a significant amount of capital to support hundreds of enterprises in India, Africa and Southeast Asia in order to create local jobs and livelihoods,” says Rai, adding that out of this $5 billion, microfinance company business Arohan should contribute $2.5 billion, Ashv Finance: $1 billion and Aavishkaar Capital the remaining amount of around $1.5 billion. Intellecap will be able to create bridges between all the ecosystems and will operate in India, Africa and South East Asia with 80 per cent business in India and the reaming 20 per cent in the other two global markets.

In the next five years, from 2025 to 2030, says Anurag Agrawal, we will have to grow the business two times at least. To do that the group need to replicate the strategies of Arohan and Ashv Finance in Africa and also scale the assets under management on the impact side to around $2.5 billion, taking it to the goal of $12 billion by 2030. This is going to be based on another entity creation between Arohan, Ashv Finance and Aavishkaar Capital.

“We are all ready to work towards achieving the set goals as the entire impact investing ecosystem is undergoing a big change. For a very long time, people used to consider impact investing as not for profit investing or philanthropic investing or grant based investing. However, Aavishkaar’s philosophy has always been to invest in businesses which have profitable business models and the ability to scale and create 10x kind of impact,” says Sushma Kaushik who has been a part of this transition journey since 2010.

“We are now all geared up to expand our impact ecosystem. While our focus will remain on India, we will now increase our impact investment in South East Asia and Africa. We will try to replicate our Indian success stories in these markets and help create a strong ecosystem over there,” states Tarun Mehta.

Aavishkaar Capital, the impact investing arm of the Aavishkaar Group, is a global pioneer in taking an entrepreneurship-based approach to scaling businesses for impact. It invests in sectors such as agritech and food processing, inclusive finance and essential services across India, emerging Asia, and Sub-Saharan Africa. Aligned to 13 out of the 17 Sustainable Development Goals, Aavishkaar Capital has so far raised six funds with a total AUM of around $400 million.

Out of 70 investments across companies, it has given full or partial exit in 32 cases. Aavishkaar Capital will return to the market sometime soon to raise $300 million for its next fund. Rai is of the view that Covid-19 is going to be one of the biggest disruptors and this once again validates the need for creating a strong and robust impact ecosystem in the world and thereby help needy people. “The current Covid-19 crisis is the biggest disruption mankind has ever seen. It remains to be seen how we, as an impact player, keep the world healthy, safe and sustainable while generating growth and return for our capital,” he adds.

Established in 2006 in Kolkata, Arohan Financial Services is Eastern India’s largest NBFC microfinance institution. As on March 2020, the organisation is operational in 16 states (of which 11 are low-income states across the central, east and northeast) and offers financial inclusion products to over 2.3 million underserved clients, through 711 branches with a loan portfolio of over Rs4,800 crore in microfinance and MSME lending.

“Driven by its mission to empower underserved households and small businesses through a range of financial services, in a manner sustainable for all stakeholders, Arohan plans to impact 20 million lives by the year 2025,” says Manoj Nambiar.

Incubated in 2012-13 as IntelleGrow, Ashv Finance is a tech-led NBFC empowering small and emerging businesses. Last year, as part of group restructuring, IntelleGrow, the NBFC micro-financing business and Tribe, the fintech platform of the group, were merged to form the MSME lending arm, Ashv Finance. Started as an early stage clean energy lender, it transitioned itself into focusing on micro and small businesses across multitier towns in India.

“With a strong distribution network and innovative technology, we are looking forward to a future of being known as the Phygital NBFC. Our products are uniquely designed to serve the financial requirements of the MSMEs in the Indian landscape. We nurture growing businesses with finances at the right time in order to unlock their growth potential,” states Nikesh Sinha.

Creating a sustainable society

Intellecap, on the other hand, is a pioneer in building enabling ecosystems and channelling capital to create and nurture a sustainable and equitable society. Founded in 2002, it works across critical sectors like agriculture, livelihoods, climate change, clean energy, financial services, gender inclusion, healthcare, water and sanitation. Intellecap, through its presence in India and Africa, provides a broad range of consulting, research and investment banking services to multilateral agencies, development finance institutions, social enterprises, corporations, investors, policymakers and donors.

Intellecap recently created a platform called Circular Apparel Innovation Factory (CAIF) to identify enterprises which are working in the textile space on environmentally and socially relevant issues like better and non-chemical dyes, single use and bio-degradable plastics, etc. “We would like to increase our business and team size by five times over the next 10 years.

“With every challenge there is an opportunity. Immense opportunity has opened up due to this Covid-19 challenge. Every business will be forced through this pandemic to see how it can take care of nature – clean land, clean air and clean water,” believes Vikas Bali.

As of March 2020, Ashv Finance has expanded to 14 branches and empowered over 2,000 businesses. It ended FY20 at Rs391 crore outstanding, and the 2025 plan is to end with about 250 branches, with Rs9,600 crore on the books. This year they are planning to end at Rs700 crore. Ashv will be one of the key value drivers in achieving group’s $5 billion target, by 2025.With all these capabilities and competencies, the Aavishkaar group is all geared up to achieve its goals going forward and maintain its leadership position in the global impact investing space. It has been able to put forth a strong and robust platform which provides an array of services and solutions to the impact investing sector, the existence of which has become more relevant in the current context. Its pioneering efforts, across equity-led impact investing, for high risk, high impact businesses as also taking an entrepreneurship-based approach towards development, have now been well documented and have become a model for others to replicate.

Most importantly, Aavishkaar’s vision of creating impact without compromising on commercial aspects, is something that has certainly added flavour to the entire ecosystem, which in the past, struggled to exhibit the desired results. This particular shift is now also attracting a good deal of attention from traditional PE players. This will generate a good deal of resources for the impact sector and provide much-needed momentum and eventually the three billion underserved global population will get a better deal. And there is little doubt that here, the Aavishkaar group will be a key player.

Synopsis –  This article is part of NextBillion’s series “Enterprise in the Time of Coronavirus,” which explores how the business and development sectors are responding to the pandemic.

The world has experienced many different crises and pandemics over the years, which have disrupted national, regional and even global economies – sometimes gravely. Although the disruption due to COVID-19 is not novel, its magnitude may be greater than any crisis we’ve faced in many years. Whether it was the economic recession in the United States and Europe in 2008, or the microfinance crisis in India in 2010, the effects major crises have on the economy of a country and region are profound, and they can vary greatly depending on the regional context.

For instance in East Africa, the COVID-19 crisis is having particularly far-reaching consequences due in part to the prevalence of small and medium-sized enterprises (SMEs). To take just one example, 98% of the businesses in Kenya are SMEs – and other economies in the region are also heavily dependent on the SME sector. These businesses are especially vulnerable to the current crisis due to factors such as the disruption in supply chains, which has increased the cost of doing business for companies with already tight margins, and the loss of income due to pay cuts or job lay-offs, which has reduced the purchasing power of these enterprises’ customers. For this reason, many resources have been rightly focused on helping these entrepreneurs survive the pandemic.

But though it’s true that entrepreneurs will need financing to ensure that their businesses survive the economic downturn, it’s also important to look at the other side of the coin – the funders that are supporting them. Most institutional funds are currently focusing on their well-performing portfolios by providing monetary support to ensure these enterprises’ survival, so they may not be deploying capital to new investee companies unless the deal was negotiated to term-sheet level prior to COVID-19. The burden thus lies with angel investors to support these companies in order to ensure their short-term survival – and subsequently, to ensure a healthy pipeline for the institutional investment funds after the crisis has passed.

However, angel investing in East Africa is still nascent, with high net worth individuals opting to invest in asset classes like real estate and money markets, among others. Further, some of these wealthy investors are unaware of the opportunities that early-stage companies present. Therefore, the region’s angel investors will need to exercise some level of aggressiveness and adopt a high-risk tolerance in seeking out new investment opportunities.

If you’re an angel investor focused on East Africa, how can you ensure that you not only select companies that are likely to succeed, but also that you will get some level of returns from your capital? Below we’ll discuss some practical considerations that can guide your investment thesis.

DIVERSIFY YOUR PORTFOLIO

You can consider diversifying your investments based on the sectors you invest in, the financial instruments you use, your geographical focus and the stages of the companies you select. The aim of diversification is to reduce the risk of your investment, while ensuring that financial returns are maximized. In the process, it’s good to optimize your diversification efforts by mixing different strategies.

BET ON THE JOCKEY, NOT ON THE HORSE

Consider selecting potential investee companies that have a team and leader who is not only visionary, but is also agile enough to pivot and adapt to quickly-changing situations. This type of leadership will carry the business through the COVID-19 crisis by ensuring that it is responsive to current market needs, which will ensure that your investment survives.

BE SELECTIVE WITH YOUR MONEY

During these times of crisis, be very selective about where and how you invest your capital. You may want to consider how potential investee companies performed pre-crisis, and whether they already had the potential to scale. Equally importantly, consider companies that have lower burn rates and that do not spend their available cash fast. This will ensure that the capital you invest carries the company for a longer period. It might also be prudent to consider the type of currency that you will use when supplying capital to the potential investee company, as this has the potential to greatly affect your potential returns.

DON’T BE A SHARK

Though this crisis presents an opportunity (and a temptation) to undervalue companies, as sharp declines in available capital may make them more likely to accept less favorable terms, be careful not to be a predatory shark. This might seem to provide an advantage to investors, but it also has the potential to significantly affect the motivation of a company’s management team, potentially reducing performance (and returns) in the longer term.

INVEST WITH OTHER ANGELS

Co-investment during these times will give you some level of comfort in the investment you make. Look for other like-minded investors who are willing to take the risk and invest together, because if managed properly, co-investing has more potential to generate returns than investing in a deal single-handedly. That is, when more than one investor comes together to invest in the deal, there is higher likelihood of the enterprise succeeding due to the different perspectives and networks that each investor brings. Co-investing can therefore be viewed as a de-risking mechanism.

GET CREATIVE WITH DUE DILIGENCE

Since physical movement remains restricted in many markets, seek out innovative ways to build and enhance trust with the entrepreneurs you’re supporting. This can include using technology-driven solutions, such as conducting a virtual field visit tour over Zoom, and/or working with local on-the-ground partners, who may include accelerators and incubators or local consultants. Such partners will be responsible for assessing the market perception of the product/service, getting insights from customers/users of the product, and even speaking to other on-the-ground financiers who have previously evaluated the deal to understand its attractiveness. These measures will ensure that you’ve established some confidence in the investee company (and vice-versa) before you make the investment.

PLAN TO PROVIDE MORE THAN JUST MONEY

During this time of crisis, companies require more than just the money. Plan to also provide strategic support, knowledge and access to networks to your portfolio companies, to ensure that they have the tools and contacts they need to survive the pandemic. This approach is worth the time and money it will require, because without it, your capital may be used inefficiently, and you could lose your investment entirely.

HAVE REALISTIC EXPECTATIONS ON EXITS

Have an open and honest conversation with potential investees about your return and exit expectations. This is important because, during this crisis period, investment-holding periods may be longer than anticipated, which ties up capital and delays returns for all investors. You may therefore need to work harder and explore other avenues for exits, such as strategic buy-outs, in which a potential acquiring company will acquire the shares from the angel investor, based on the assumption that the acquiring company and the investee company may have synergies in the value chain, thereby increasing the acquiring company’s market share.

Intellecap has compiled more guidance around some of these practical steps here. We hope it will help angel investors navigate the many challenges – and find beneficial opportunities – during these unprecedented times.

Mumbai, Aug 7: Santosh Kumar Singh , Director Climate Energy and Agriculture, Intellecap and Ankit Gupta, AVP, Clean Energy and Climate Change, Intellecap coauthored the article ‘Climate Finance for MSME’s’ as part of our strategic content tie up with India Development Review (IDR)

The article delves around why we urgently need to make climate finance accessible for micro, small, and medium enterprises (MSMEs), and how we can begin to do so.

Micro, small, and medium enterprises (MSMEs) have a dual relationship with climate change. On one hand, they are contributing to it, and on the other, they are vulnerable to its risks.

There are a number of studies that establish the fact that MSMEs have quite a significant footprint when it comes to greenhouse gas (GHG) emissions. For example, according to a study conducted by CSTEP, in 2015-16 the informal sector (which is largely composed of MSMEs) consumed approximately 13 percent (81 million tonnes or mt) of coal and lignite, seven percent (8.5 mt) of petroleum products, and eight percent (3.3 billion cubic metres) of the natural gas supplied in India. Further, this sector emitted 110 mtCO2e (110 million tonnes of CO2 equivalent) in 2015–16, owing to fossil fuel usage.

“MSMEs are also disproportionately affected by climate risks.”

Both physical risks (damage to infrastructure and assets such as buildings and factories, as well as to people and communities), and transitional risks (policy changes, reputational impacts, and shifts in market preferences and technology) slow down or halt the operations of a MSME, leaving them in need of immediate and considerable financial support.

Given this, it is understandable why MSMEs require an urgent push towards the adoption of technologies that lower their emission footprints and reduce their vulnerability to climate change. Climate finance can help MSMEs make this transition. However, this has remained elusive to a large number of eligible enterprises.

What makes climate finance hard to access for MSMEs?

The credit gap for MSMEs in India was pegged at about USD 240 billion (about INR 16.66 lakh crore) in 2018. Considering the fact that a large number of MSMEs still struggle to get traditional finance in India, climate finance is a distant dream. Here are some factors that contribute further to the difficulty:

1. Lack of awareness

Lack of awareness about climate finance mechanisms and provisions is a major concern among MSMEs. Majority of the MSMEs in India are micro enterprises (approximately 99 percent). These enterprises are located across the country, including in remote geographies.

The lack of available information on climate finance and low financial literacy levels limit their understanding of how their businesses could benefit from climate finance. They would not know, for instance, that leveraging climate finance can help them manage some of their business risks, or about the availability of newer, cost-effective technologies that reduce carbon emissions. As a result, they would not know to go looking for these opportunities, let alone think through how they could benefit from them.

2. Formal financing structures

It has been observed that only around 16 percent of MSMEs, are being financed by the formal banking system in India. Given that climate finance in India flows mainly through formal financing structures with stringent rules and regulations such as Union Budgets, State Budgets, national climate funds (National Clean Energy Fund [NCEF] and National Adaptation Fund [NAF], for example), private climate finance (Clean Development Mechanism [CDM], for example), and international climate finance (Green Climate Fund [GCF] and Global Environment Facility [GEF], for example), this acts as another barrier.
What’s more, international climate finance institutions and facilities such as the GCF require applications from a dedicated accredited entity or a qualified financial institution working with an entity accredited by the GCF, to propose approaches that deploy financial solutions for MSMEs.

3. Extensive procedural requirements

There have been a number of mechanisms and programmes supported by the World Bank, GEF, and others, that have been successfully implemented to bring the benefits of climate finance or development finance to MSMEs, specifically to help them transition to modern, energy-efficient technologies.

However, participation of MSMEs in these schemes has been limited due to a number of factors, including the necessity of an upfront investment, procedural requirements such as preparation of detailed project reports, energy and emission audits, and so on. These are not feasible for a large number of small and micro enterprises since they don’t have the capabilities or resources to do this.

What can we do to enable climate finance flow to MSMEs?

There have been a number of attempts to reimagine climate finance and work on the challenges that exist in the current ecosystem. For example, the Ministry of Micro, Small and Medium Enterprises has ongoing initiatives to create awareness among MSMEs about new technologies, along with several incentives and schemes to support them.
However, the attempts so far have been inadequate, in part because most of them require MSMEs to proactively explore climate finance, which, given their informal nature and lack of technical know-how, is difficult. Here’s what can be done to change this:

1.Make the climate finance ecosystem MSME-friendly

Instead of eligible MSMEs chasing climate finance, the ecosystem should look for eligible enterprises and deliver climate finance to them. While this may sound like wishful thinking, it can actually be built on the blocks of the new initiatives currently being provided by the ministry.

The existing MSME databank can be further developed to collect data which tells MSMEs whether they are suitable for climate finance, and then guide them accordingly.

The existing Data Analytics and Technical Coordination (DATC) wing set up to support the MSME sector can be leveraged to understand the vulnerability of a given enterprise to climate risks and develop support measures for them.

Direct benefit transfers (DBT) can be leveraged to deliver subsidies and social welfare benefits to MSMEs.

2. Change eligibility requirements for MSMEs and financial institutions catering to them

The next set of measures needs to focus on the existing eligibility requirements of MSMEs for climate finance. Currently, the eligibility criteria vary from scheme to scheme and from mechanism to mechanism (GCF, NCEF, and others). For example, MSMEs cannot directly avail climate finance from GCF and other similar sources since their funding requirements are significantly smaller than what the GCF provides.

“There is also a need to have simpler processes of registration for climate finance, as well as for verification of climate benefits.”

Currently, both these serve as deterrents for MSMEs because of their inability to invest upfront in these processes.

The other requirement is to have a dedicated climate finance facility for non-bank financial companies (NBFCs) and microfinance institutions (MFIs) catering to MSMEs. Financial institutions access climate finance from GCF or other such sources and then deliver it onwards. This does not work for MSMEs, as a majority of NBFCs or MFIs who are the main providers of finance to MSMEs are either not eligible (due to stringent eligibility criteria) or find it very difficult to access climate finance.

Thus, eligibility requirement of financial institutions delivering climate finance need to have specific provisions for NBFCs and MFIs that enable them to avail of climate finance themselves. (It is worth mentioning here that climate finance often has restriction of exclusivity on its use, so the financial institutions delivering it have to showcase that the pool of capital that they have accessed from these sources is only being used for financing projects or interventions that have climate benefits.)

There is need for processes and mechanisms so that not just MSMEs, but the financial institutions catering to MSMEs are also able to leverage climate finance in order to build a MSME-friendly financing ecosystem.

3. Reimagine the role of financing institutions

Overall, there is a need to develop a mechanism that enables climate finance to reach MSMEs proactively. For this, there is a need to revisualise the role of financing institutions that cater to the MSME sector. SIDBI, NABARD, and IREDA (for green finance) have been primarily focusing on direct financing or refinancing of loans to NBFCs and other financial institutions catering to MSMEs, which are quite insufficient considering the total credit requirement of MSMEs.

These institutions (or probably new ones) should focus on unlocking more capital to the MSME sector by first loss default guarantees or other risk mitigation measures that enable more credit to the MSME sector. As we bring more formal credit to them, enabling climate finance will become easier.

“As we bring more formal credit to them, enabling climate finance will become easier.”

Furthermore, there is a need to build the capacity of financial institutions and include them in the process of origination, application, and delivery of climate finance. This requires building their capacity and providing them easier access to climate finance as well. They should also be leveraged to serve as a guide to the MSMEs. Financial institutions can easily identify potential climate finance beneficiaries by having a few additional questions in the loan applications; they can use this to guide their MSMEs through the process.

Financial institutions catering to MSMEs are the most critical stakeholders in enabling climate finance for MSMEs, and it is almost impossible to think of an effective climate finance ecosystem for MSMEs if we do not leverage them optimally.

1 Billion People Live in Informal Settlements Worldwide: Here are Seven Key Challenges They’re Facing During COVID-19 : The article in Next Billion by Margaret Nakunza, Associate, Intellecap Africa was based on the AVPA and Sankalp Dialogues webinar series, which explores how the business and development sectors are responding to the pandemic.

AVPA, in partnership with Sankalp Dialogues, kicked off a webinar series in April, to find out what various organizations across the continent are doing to #CrushTheCurve .
The virtual convening is ongoing, and it aims to:

-Share examples of how program implementers are responding to the outbreak, ranging from preparedness to mitigation

-Hear from voices on the ground and discuss how best to address upcoming challenges and reduce their impact

-Share solutions that can be easily embraced and implemented effectively, efficiently and quickly

Mumbai, June 4, 2020:  COVID-19 has brought an end to the ‘greed is good’ era. There will now be a new economic world order in which the only thing that will matter is an inclusive and sustainable world.

Impact is the new mainstream says Vineet Rai, Founder and Chairman, Aavishkaar Group as he writes for IDR Online

As the challenges of COVID-19 unravel and ravage humanity across the globe, one recurring discourse has been to use this disruption to reimagine the economic architecture. Is it possible to convert the pandemic into a launch pad for a more humane, inclusive, and sustainable world?

The idea of impact investing is one such powerful idea, conceived to challenge the hegemony of greed and the desire to maximise returns at all costs, by taming capital into a more humane, sustainable, and inclusive tool for change.

In my journey of two decades chasing this dream of making impact a real alternative to mainstream global capital pools, I have learnt that money is a complex subject. And because most global capital is regulated by government (but not controlled by it), I’ve also realised that it is nearly impossible to tame global capital’s natural instinct.

But the disruptions caused by COVID-19 give me hope that, despite these limitations, impact investing may have a major role to play over the next decade in reimagining a new world—a world with no hunger, no poverty, and no inequity.

Commercial capital is driven by greed

The global capital pool is roughly USD 300 trillion and its primary objective is to maximise returns within the boundaries of identified risks. Capital markets work on mandates, and so far, they have focused almost entirely on this single parameter—maximising returns.

Over time, there have been significant causes that have knocked on the doors of capital—from philanthropic asks to help the vulnerable and marginalised, to demands to balance the reward equation to avoid concentration of capital, to calls for stopping investment in extractive industries such as oil, mining, and fossil fuels. However, none of these appeals have influenced the mandate of capital in any significant manner.

“Some among the affluent try to make an impact through philanthropy, but the contribution pales against the destruction caused by the ‘greed is good’ approach.”

The disdain for these asks is not because of ignorance of the risks that arise from social inequity or climate change. It is because the leadership of capital markets probably believes that the giant machine of capital allocation has little to do with these asks. They believe that corporate social responsibility (CSR) and philanthropic activities is where these demands should be directed, since capital markets must focus on an unadulterated vision of return at all costs.

Not surprisingly, this leadership represents the privileged and powerful. While they accept in hushed tones the downsides of this approach for the poor and marginalised, they consider them as collateral damage to the holy quest for capital multiplication.

An equally important factor is that while the world of capital plans for long-term risk management, its incentives as a global collective are more aligned to quarter-on-quarter performance. Long-term-ism is a philosophy to pontificate, not to act. While those who are conscious among the affluent do try to make an impact using personal wealth through philanthropy, the contribution pales against the destruction being wheeled in by the mainstream ‘greed is good’ approach.

The idea of impact investing

Impact investing—an idea mooted at the turn of century in India and the USA—believes that one can do good to do well. The idea took some time to find a toehold in the world of capital—the early adopters and leaders were focused on demonstrating that making impact has powerful potential to deliver returns. One of the goals of impact investing was also to wean away large pools of commercial capital from its single minded pursuit on maximising return, and instead deploy it to build businesses that were inclusive, sustainable, and impactful, while delivering returns.

What counts as impact

During its early days, the idea was seen as utopian, and marginalised as a fringe innovation, as an alternate to philanthropy, rather than a challenge to the hegemony of commercial capital and its bottom-line pursuit. This has changed over the last decade. Today, with USD 500 billion allocated to impact investment, some of the largest aggregators of capital are now committed to this idea and see it as an important tool of change.

As one of the early messengers, I have often wondered if commercial capital has simply co-opted the idea of impact investing to make sure it does not challenge the capital hegemony, by taking away the focus from its true potential. Because, while it has pushed people towards measuring the outcomes of their investment, it has not changed the key architecture of how capital is deployed.

Mainstreaming impact investing

Impact investing has the potential to disrupt the global economic order and threaten the established and deeply entrenched world order. And the best way to neutralise a great idea and to preserve the status quo, is to co-opt the idea and mainstream it. Impact investing as an idea is therefore being co-opted by the capital aggregators, so that in the guise of numbers and outcomes, its soul can be trampled.

“Today, the language of the impact investing is no different from the language of mainstream capital.”

The idea of ‘doing good to do well’ is being replaced by ‘doing good and doing well’, thereby separating the impact from the process of capital allocation. This allows for minor tweaks in the current economic architecture and lets us continue to do what the capital world has done for ages, and be seen as impactful and sustainable.

As we stand today, most people who entered impact investing believe that it allows you to have your cake and eat it too. That it is possible to change the world while satisfying your greed. By co-opting the word impact, the idea of change has been diluted and compromised. Today, the language of the impact investing is no different from the language of mainstream capital.

COVID-19 offers us hope that things will change

To say that COVID-19 is a pandemic and a health hazard is obvious. But it is also a virus that has democratised fear, as it ruthlessly impacts everyone, including the rich and the powerful. Ministers, bureaucrats, CEOs, fund managers on one side, and nation states with powerful armies and some of the highest per-capita incomes on the other, have all found themselves tamed by the onslaught of a virus weighing just a few micrograms.

With the wheels of economies coming to a grinding halt, the managers of capital have seen a decimation of wealth as never before. It has hit those who never thought that such risks could manifest themselves and result in such destruction for them. Moreover, they have no idea as to how deep, long, and damaging this could be going forward.

‘Greed is good’ is dead

The privileged minority that controls the USD 300 trillion capital pool, which has always looked at risk and return as a continuum, is faced with an undefined risk that destroys value. It is not about maximising returns anymore, but protecting value. Can they protect the USD 300 trillion from losing its value? For the first time, it is not a question of earning less returns on the capital but actually losing it, and therefore, the focus is on the return of capital than return on capital.

COVID-19 has demonstrated to the money managers that risks that seemed like theoretical constructs by scientists, or showed up as glaciers melting in Antarctica, or rising sea levels in Southeast Asia, can strike and paralyse the global economy. The pandemic has brought the unsustainability of the outside world inside the boardroom of the rich and powerful. There is fear now.

Resilience trumps return

If greed is dead, what then is the new world order? It is one where resilience trumps return, where survival and sustainability of capital far outweighs the return that capital can generate. Given this, the best-case scenario for anyone is ‘resilience with return’, since ‘return at all costs’ is not an option anymore. This requires asset managers to take a long-term view of their actions on the society, before they take a view on the immediate return.

This is exactly what impact investing offers. It encourages the world of capital to embrace sustainable investing for good returns. It seeks capital to be invested in a way that uplifts people and society, sustainably.

Impact is the new mainstream

Given COVID-19 and its fallouts, mainstream capital now has to mimic impact investing and look, feel, and act like it is making impact, rather than the other way round.

In the new economic world order, the only thing that will matter is an inclusive and sustainable world. And when that happens, capital, companies, and leaders will look to build businesses that further equity, inclusiveness, and sustainability as a core strategy and seek shareholder returns that draw from this.

This new world order will also bring about other fundamental changes

First, capital will have to face a much higher level of accountability and scrutiny on the idea of impact, inclusion, and sustainability, and it may not be enough for a business to just claim impact. The idea of preparing a balance sheet and developing an accounting standard that takes into account the impact on sustainability will be pursued with same vigour over the next decade, as were accounting standards in the last century.

Second, we will require significant technological interventions, because impact investing by nature takes place in remote and inaccessible regions, where one can only work through technology. Digital transformation in the space of impact will be one of the most far-reaching tectonic shifts that we will see in the near future.

“The quest for resilience will force the world of capital to replace the idea of greed with sustainability, inclusion, and impact.”

Globally, we will also see a shift in geopolitics—from the hegemony of one or two, to several blocks of power. And even though it has become a cliché now, I think oil is a passé, and we will see investments in greener energy. Climate, energy, environment, and sustainability—these will become buzzwords of the future. There will be new roles for technology, new models of sharing, and new sectors—health, water and sanitation, hygiene, and so on—will lead the way capital is deployed.

Overall, the quest for resilience will force the world of capital to replace the idea of greed with sustainability, inclusion, and impact.

Change will come because it is about self-preservation for the rich

The world has seven billion people but very few control capital. And while 99.9 percent of humanity may forget the trauma of the COVID-19 crisis few years down the line, the few who control global wealth—those with the money and influence—are unlikely to forget the impact of this pandemic.

The world will change not because people will remember the trauma caused by the migrants walking; it will change because the virus has permeated the fear right inside the boardrooms of the largest companies, and the family offices of the richest people. The changes will come as self-preservation for the rich becomes a priority, and global shifts only take place when the powerful are fearful.

To read the full article in IDR Online Click Here