Worldwide, around 2.5 billion working-age people struggle to meet creditworthiness tests by mainstream lenders. In India, 28% of its 1.3bn population live below the poverty line, which means they can’t borrow money to ride out tough patches or grow their businesses during better times.
A new breed of microcredit providers is filling that gap, keeping potentially vulnerable people out of the hands of unscrupulous loan sharks. India’s Light Microfinance specialises in helping women from mostly poor rural households break out of the poverty spiral through micro- and meso credits. The latter include loans to SMEs that otherwise would be left out between microcredits and regular bank loans.
Light’s vision and solid growth record attracted the attention of Belgian impact investor Incofin Investment Management, Dutch Triple Jump and Norwegian Nordic Microfinance Initiative. This month they co-financed a US$10mn equity investment to help the company continue its journey.
Deep social impact
“Financial inclusion is one of the sectors that make the deepest social impact in India,” says Loïc De Cannière, Icofin IM’s founder and chair. “We firmly believe in Light’s management team and expect they will reach over 2 million rural households, creating more than 4,000 employment opportunities in rural areas.”
First created over a decade ago in Ahmedabad, India, Light gained its licence as a non-bank finance company with the Reserve Bank of India. The lender now has over 130 branches helping hundreds of thousands of women become entrepreneurs in agriculture, food preparation, ceramics, handicrafts and more.
One customer, Sumaiya Ben, used a small loan to build up her kite-making business and attract wholesale orders. Another, Chauhan Manjulaben, used her line of credit to expand a small vegetable-growing business and buy cattle, increasing her monthly earnings to around INR10,000 (€115). She now plans to expand her business even further by employing two helpers.
Light sees its customers as members of an extended family whose ability to “survive and thrive in the most difficult of situations” is a huge inspiration. Managing Director Deepak Amin believes having world-class impact investors onboard is more than an injection of funds; it is also a “deep well of experience to draw upon”.
Brokers for good
Incofin IM brokered the deal with Light as part of its five-year US$76mn agRIF fund focusing on financial inclusion for rural entrepreneurs and small-hold farmers. Thanks to what De Cannière describes as “strong goodwill between Incofin and Light” the proprietary sourced deal only took around four months to finalise.
In related news, Incofin also announced last month a US$60mn India Progress Fund (IPG), its first-ever country-focused fund. Roadshows for IPG started in 2019, then fund-raising was put on hold in 2020 due to Covid-19.
But for De Cannière and his team perseverance is expected to pay off: “We are convinced that strategic partnerships between large corporations with a genuine focus on sustainability and impact fund managers backed by investors with an impact mandate are the way forward to achieve tangible impact on the ground.”
Yet challenges remain, according to Begaim Sadyrova, a Triple Jump equity investment officer. Covid-19 is a fluid situation across developing regions where slower vaccination rates are putting a strain on lives and livelihoods. “The countries are doing their best to speed up the processes, but getting full control over the pandemic will take time.”
Tackling poverty and gender inequality
The UN declared 2005 the International Year of Microcredit in the hope of raising awareness of poor communities battling to “grow thriving businesses and, in turn, provide for their families, leading to strong and flourishing local economies”.
In 2006, the Nobel Committee gave its Peace Prize to Grameen Bank and founder Muhammad Yunus for their life-changing small loans on easy terms to the very poorest people in Bangladesh: “The bank has since been a source of inspiration for similar microcredit institutions in over one hundred countries.”
Today, well over 3,100 microfinance institutions exist worldwide. Alleviating poverty and gender equality have become two of the 17 UN sustainable development goals. Microcredit aimed at women has clearly emerged as an effective tool in achieving both.
When women own and control productive assets, according to the OECD, “it speeds up development, helps overcome poverty, reduces inequalities and improves children’s nutrition, health, and school attendance”. Meanwhile, closing the labour participation gender gap across OECD countries by just 50% could boost GDP by an extra 6% by 2030, or double that if complete convergence is achieved.
“I don’t think that our economies can afford to ignore such huge potential,” urged OECD Deputy Secretary-General Mari Kiviniemi during the organisation’s annual forum explaining “why a push for gender equality makes sound economic sense”.