Policy

‘Reducing bureaucratic restrictions can be welcoming for impact investment’

NARAYANAN V Chennai | Updated on March 01, 2021

Ajay Rao, Regional Managing Director for South Asia, US International Development Finance Corporation (DFC)

In an exclusive interview with BusinessLine, Ajay Rao, Regional Managing Director for South Asia, DFC shares his views on impact investment in India, challenges and opportunities.

US International Development Finance Corporation (DFC), the US government’s development finance institution, has been partnering with the private sector to finance solutions to the most critical challenges facing the developing world. In India, DFC has an outstanding portfolio of over $2.5 billion across 50 projects including commitments in renewable energy, financial services and impact investments in agribusiness and healthcare.

In an exclusive e-mail interview with BusinessLine, Ajay Rao, Regional Managing Director for South Asia, DFC shares his views on impact investment in India, challenges and opportunities for impact investment, focus sectors for DFC, and the importance of India in DFC’s global scheme of things.

Excerpts:

What’s your view on India as an impact investment destination?

India has both a great need for investment as well as a wealth of educated and talented entrepreneurial individuals who are developing innovative ways to solve some of the biggest challenges the country faces, from food insecurity to insufficient electricity. DFC has a significant portfolio of impact investments in India. India’s large population also supports impact investors by enabling ideas to scale quickly. If the government can reduce bureaucratic restrictions and adopt reforms to protect investors, it will create a more welcoming environment for impact investment.

What do you think are some of the critical challenges that India is facing?

Both within India and across the Indo-Pacific region, transportation, energy, water, and communications infrastructure are unable to meet growing demand and require massive investment. Progress in physical connectivity will position India to serve as a better economic partner and as an alternative hub for Indo-Pacific and global supply chains.

We have seen great progress and innovative methods of support from the government, including the hybrid annuity model, which facilitates the government’s provision of some upfront payments for construction and then provides regular payments for a long-term concession.

This enables lenders to finance road construction based on the guaranteed payments of the government. Through recent agricultural projects, we have seen new companies that can take advantage of better connectivity in the last mile and reduce food wastage with improved transport infrastructure. With the emergence of new companies comes job creation and economic growth for India.

What is DFC’s active exposure in India and which are the sectors in which those funds are deployed?

Since 1974, DFC (under its predecessor agency Overseas Private Investment Corporation, or OPIC) has provided support to over 200 projects in India in the form of loans, investment funds, and political risk insurance. As of December 2020, DFC’s current outstanding portfolio in India comprises more than $2.5 billion, across 50 projects. In renewable energy, the DFC has committed approximately $800 million when the sector was at an early stage in India, catalysing the robust private sector investment we see today.

The Better Utilization of Investments Leading to Development (BUILD) Act of 2018, which created the DFC, not only doubled available funding worldwide to $60 billion but also created new capabilities that could expand opportunities for investment, such as equity investments, grants, feasibility studies, and technical assistance for proposed projects.

We have since committed about $900 million in India, for infrastructure transactions as well as growth-oriented SMEs, including $15 million in a Bengaluru-based company called FreshtoHome Foods Ltd., which sources fresh fish, meat, and produce from local farmers and fishermen and sells it in urban areas in the country. It is a business that is helping generate income for food producers and increase food security.

How important is India in DFC’s global scheme of things?

India has an important role to play in the global economy, as a center for innovation and a manufacturing alternative for regional and global supply chains. In order to reach its potential, it will be essential for India to invest in projects that advance regional connectivity, food security, as well as critical access to education and financial services, so that opportunity is widespread.

One of the projects we support is a company called Varthana, which provides financing to some of the thousands of affordable private schools that serve low-income families. DFC’s support allows these schools to invest in technology as well as basic facilities to serve more students.

Projects like this one helps improve individual lives while also strengthening families, communities and, ultimately, the entire country.

We see India as developing low-cost solutions for development challenges that face emerging markets. Part of the DFC strategy is to finance Indian companies with their cross-border transactions, as operations or exports expand to the South Asian Subcontinent and South-East Asia.

DFC has made a debt financing commitment of $50 million to Northern Arc and $20 million to Non-Banking Financial Company Samunnati in CY2020. How much of the commitment has been disbursed so far and what are the key sectors of focus for these disbursals?

These are vital projects that will increase lending to expand access to water, sanitation, and food while also reaching some of the most underserved borrowers, such as women.

We have worked with the Northern Arc team to design a program of lending for women-owned/managed businesses, food security, lending to agribusiness and to the water, sanitation, and hygiene sector. With Samunnati the DFC loan will be focused on Farmer Producer Organizations (FPOs), enabling the FPOs to borrow for agricultural infrastructure that their small holder farmers can utilize.

Energy is one of the investment priority areas for DFC. India has also set an ambitious target of increasing its renewable power generation capacity to 175 GW of clean energy capacity by 2022. Do you think DFC’s investment can play a crucial role in achieving this target?

Certainly, DFC has nearly $1 billion invested in renewable energy in India. Going forward, DFC will not only finance utility scale renewable energy, but also expand its portfolio in rooftop solar and financial institutions lending to clean-tech enterprises.

Covid-19 has exposed chinks in India’s healthcare infrastructure. Government is expected to give a lot of impetus to the sector. Do you see an opportunity here?

DFC has a long history of investing in projects that expand access to healthcare in India and around the world, but the Covid-19 pandemic has created an urgent need for additional investment. Our Global Health and Prosperity Initiative will catalyze up to $5 billion of investment in projects that support the Covid-19 response and build greater health resilience.

While much of the Covid-19 response will involve strengthening value chains to deliver critical therapeutics and vaccines, building long-term health resilience will also involve expanding access to clean water to promote better hygiene, and to electricity for improving the delivery of healthcare.

Published on March 01, 2021

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