India has one of the largest populations in the world, and there is tremendous opportunity for economic growth and prosperity. With so many young people who are ready, willing, and able to work, the right support structures can create a robust workforce to contribute to the growing economy. Right now, there are 63 million micro, small, and medium enterprises (MSMEs) in the country who already contribute to 30% of India’s workforce and 28% of its GDP. This number could rise to more than 50% over the next three years, provided we create a system that supports small entrepreneurs and business owners with loans and capital.
Many MSMEs are micro businesses with annual turnovers of less than Rs 50 million and have a limited track record of financial transactions. Small business owners often find it difficult to access credit for their working capital or growth needs. The nationwide lockdowns during the pandemic increased risk perceptions for lenders, leaving many nano entrepreneurs and their employees at risk of spiraling into poverty.
Caspian Impact Investments offers customized debt products to non-banking finance companies (NBFCs) that lend to MSMEs and small-and-medium-sized social enterprises, specifically those in agriculture, education, healthcare, and energy. They continued their lending support during the pandemic to ensure the survival and recovery of their clients.
So far, Caspian has unlocked $20 million for over 12,000 micro-enterprises in the small traders, small-scale production, manufacturing, and livestock sectors in a short span of eight to nine months.
How it Helps
Credit support to MSMEs in India, especially those categorized as micro-enterprises who often lack any collateral and credit history, has always been perceived as high risk by formal financial institutions. This in turn makes it difficult for MSMEs to secure credit – the IFC estimates a credit demand of at least INR 12 trillion.
Without access to formal credit, micro-enterprises have turned to local money lenders in times of stress. Exorbitant interest rates and often non-transparent pricing and loan terms trap small businesses in a vicious cycle of debt. These businesses are an important feeder to India’s economy, giving employment to millions and supporting the local communities.
To help bridge the lending gap and enable these crucial small businesses to thrive, Caspian Impact Investments offers debt support to NBFCs that lend to micro and small enterprises. Such NBFCs design their own credit assessment and underwriting processes to mitigate the risks of unsecured debt to micro-enterprises. Caspian undertakes detailed diligence of these processes adopted by the NBFCs and offers debt support to select NBFCs.