Investing in the capital-starved sectors of India
A prominent global development finance institution weighs up channeling commercial investment to underserved Indian states in the North-East and to sectors that can deliver real development impact.
Thirty years ago, CDC, the UK’s government-owned development finance institution, made its first major investment in India. Since then, as India’s economy has changed beyond recognition, we have helped to build some of the country’s most important businesses and financial institutions, including Apollo Tyres, UTI Bank (today Axis Bank), IDFC and Glenmark Pharmaceuticals.
At a special event in Delhi in October, we are marking both that 30-year milestone and the 70-year anniversary of CDC’s creation back in 1948 as the world’s first development finance institution. We’re meeting key business leaders and will hear from government representatives about how the UK can continue to work with India to support its economic development. This is a country that has enjoyed significant growth but still has developmental challenges, a country where CDC’s long-term capital and expertise can make a huge difference.
Since those first investments in the late 1980s, CDC has worked with Indian entrepreneurs and investors to build a $1.7-billion portfolio of over 300 investments in India. Measuring and evaluating the impact of those 300 investments is central to the work we do as a development finance institution. Our analysis shows us that those CDC-backed companies support around 350,000 direct jobs in India and many more in their supply chains. But we also know that our impact is about more than just jobs. We measure the local taxes paid by our Indian investee companies, which came to over $1.1 billion in 2017. And the work we do with financial institutions shows that they generated a loan portfolio in India of $45.2 billion, helping to provide finance for small businesses; unbanked customers and many others who previously had little or no access to basic financial products.
It’s clear that India’s economic powerhouses – sectors like IT and regions such as the South and the West of the country – have succeeded in attracting capital from both leading Indian and global investors. CDC’s focus as a development investor means that our priorities change as the need for capital in India changes. We’re now more focused than ever on getting commercial investment to the underserved and more capital-starved states like the North-East, and to those sectors that can deliver real development impact.
With that in mind, we are announcing that CDC aims to invest around $1.7 billion in India and its neighbouring states over the next three years.
What does this mean in practice; and what type of investments will CDC make? Our objective is to make investments that can combine both financial return and social impact so our focus will be on finding opportunities that meet these criteria. We’ll invest in companies that aim to provide affordable and accessible goods and services whether in healthcare, energy or financial services.
Micro, small and medium-sized enterprises are critical to economic development in India but as many as 90 per cent of these firms can’t access the finance they need to grow, so we’ll back the microfinance and non-banking finance companies that reach them. That will mean more investments like those we made in RBL Bank and IIFL Finance supporting microcredit, agribusiness, affordable housing and SME loans. Or in Equitas, a Chennai-based finance company that reaches poor and unbanked customers with a broader range of financial services.
We intend to increase our direct investments in job-creating industries such as healthcare, particularly those providers bringing new treatments to market; finding new ways to serve poorer groups by reducing costs; or those that can train thousands of healthcare professionals. We’ll also back sectors like food & agribusiness that need to mobilise more private capital; and in clean energy projects like our investment in Ayana Renewables Power that help India make its transition to low carbon power generation.
Our support for the Indian investment ecosystem will increase too. CDC has played a crucial role in India’s investment funds market since the 1990s, backing 57 India-focused investment funds, more than any other Limited Partner in the private equity space. We’ll focus on both the mid-cap market and on a venture capital programme designed to finance innovative and high-tech firms. Our venture capital approach will support funds that back technology firms providing affordable goods and services at scale in areas such as healthcare, like our recent investment in Pi Ventures. And we’ll be committing more to investment funds targeting job creating sectors like infrastructure, agriculture and affordable housing. In October, for example, we’re launching a $50-million investment pilot with the Kotak group that will increase affordable housing in many of India’s lower-income states.
India is already an important economic partner for the UK and as we move towards a post-Brexit future that relationship will strengthen further. CDC is committed to playing a key role by bringing our capital and expertise to the Indian entrepreneurs who are transforming the country’s business environment, opening up its markets and changing the lives of some of its poorest people.
Holger Rothenbusch is Managing Director at CDC, a UK-based development finance institution, and has built CDC’s new Debt business.