Increasing Access to Credit for Nascent Social Enterprises
Launch Year: 2020
Instrument(s): Portfolio Guarantee
Target Geography(s): India
Target Sector(s): Very early-stage social enterprises- sector agnostic
Key Stakeholder(s) + Role(s):
- Philanthropic Partner: Villgro Innovations Foundation
- Risk Investor: Caspian Debt- The Lender
Executive Summary
Access to credit is a challenge for social enterprises. It becomes even more difficult for social enterprises working on technological innovations that create positive impact. Given the new business model, early stage and smaller debt requirement, it is difficult for any lender to evaluate the business and provide appropriate credit.
In partnership with Villgro, an incubator with 20+ years’ experience incubating social enterprises, we designed a program enabling rapid access to small value debt (INR 1 Mn - 5 Mn) for early-stage social enterprises. We agreed on an expedited credit framework and a risk sharing mechanism based on which we could evaluate and disburse collateral free debt funding to high impact social enterprises within 10 days.
Financial Structure
Being a prominent player in India’s impact landscape with 17 years of group experience and 9 years of NBFC experience, Caspian Debt has the unique ability to source and appraise credit assets with high potential for impact. However, as a regulated lending entity, risk taking ability is limited by the nature of these unbanked credit assets. This is where a credit guarantee by a philanthropic partner helps enhance the risk-taking ability of Caspian Debt, thereby creating a large-scale impact. Availability of guarantee also helps Caspian Debt in raising funds for a non-collateral-based lending which is considered risky.
In this partnership, Caspian Debt acted as the risk investor while Villgro Innovations Foundation (VIF) took the role of Risk Sharing Partner. A 33% portfolio level guarantee was provided by VIF, through its partners, to support early-stage enterprise recommended by VIF.
Key Insights/Learnings
Debt is non-dilutive growth capital which can help companies scale but enterprises at very early stages do not have the financial strength to afford debt on their own. Lack of credit history and collateral also prevent access to commercial debt. It is here that an intervention by a partner provides the support needed to scale these companies.
With this intervention, a few companies were able to scale and even raise commercial debt in their later stages, thereby setting an example of success of the intervention.
Impact to Date
Examples of some highly impactful companies supported by this intervention:
1. An agritech company using drone-based data intelligence technology to enable sustainable farming and reduce crop losses for small-holder farmers. They also help farmers get organic certification and further market linkages. This company was initially supported by the program and later went on to raise commercial equity capital & credit from mainstream investors. It also helped the company grow and stabilize its operations and create impact at a larger scale.
2. Customised solar rooftop solutions to schools and primary health centres in remote areas of North East where grid electricity connections are impossible. This intervention has made possible access to education and healthcare for families in areas which was not possible otherwise.