‘India is a hotbed of financial inclusion’

As Chief Operating Officer of Accion, a non-profit organisation that lends to and invests in ventures in the financial inclusion and financial technology sectors, Esteban Altschul has a ringside view of developments across the globe in these areas.

“Right now,” he says, “for Accion, in terms of our current exposure and potential that we see, India is the most important country for us.” Accion, he points out, operates in more than 30 countries.

Altschul adds that India is a hotbed of financial inclusion and at the forefront of innovation in financial inclusion and in fintech. The huge market and the unmet demand – of nearly 300-400 million people without access to quality products and services – puts India right at the top in terms of Accion’s operations.

Investment areas It has so far invested in over a dozen ventures, committing about $8 million, with a handful more in the pipeline. Its investments here include IFMR Holdings, Shubham Housing Development Finance, MeraDoctor, NeoGrowth, AYE Finance, Saija Finance and CreditMantri. Accion invests in non-banking finance companies, micro-finance institutions and fintech companies through three vehicles – Gateway Fund, Venture Lab and Frontier Inclusion Fund – participating from the seed stage to Series A and beyond, depending on the fund from which it invests and the nature of the venture.

Apart from the size of the market, Altschul says there is an incredible amount of innovation happening across the country in the sectors in which Accion is interested in. “Some of the biggest innovations in the world in financial inclusion are taking place right now in India,” he adds. “It remains to be seen whether the big home-runs, the big-scale successes are going to happen. The early indicators are positive.” He is confident that in the next two-three years, there will be successes.

His optimism comes from his observation that “even at the seed stage in India, we are seeing the second and third rounds happening faster than anywhere else in similar countries.” You see companies with a trajectory of increasing revenue, increasing number of clients and increasing margins. These are early days till, but the signs are positive, he adds. “The size of the market, the innovation and the capacity of the entrepreneurs and institutions… you have in India today, a sound economic and political environment to make these kinds of initiatives successful, all the right ingredients for this to take off.”

Altschul, an Argentinian with a BS in International Business Diplomacy and an MS in International Economics, both from Georgetown University’s School of Foreign Service, points to an interesting trend among MFIs globally. “What is fascinating is how quickly players are learning from each other. There are enterprises coming to India from Latin America to learn about what is happening in the Indian market. We do also have Indian entrepreneurs gong to visit more mature, larger MFIs in Latin America,” he says.

Globally too, there is a lot of innovation happening in both financial inclusion and financial technology, especially in the countries where Accion operates in – India, China, Kenya, Nigeria, Mexico, Peru and Colombia. “Those are the countries where you have the combination of more scale, more impact innovative entrepreneurs and more possibilities to make a change,” he adds.

Also, there will be a greater focus on lending to micro enterprises. Their problem of lack of access to formal credit remains the same across the globe.

Investment strategy On Accion’s investment strategy, Altschul says with Venture Lab, Accion will typically come in immediately after “family and friends” have put in their money in the venture; sometimes in the first formal round or what is called the pre-Series A round. Venture Lab provides seed capital and support to innovative financial inclusion start-ups, investing $100,000-500,000 in equity or quasi-equity investments. The Accion Gateway Fund invests in equity of micro-finance institutions, again coming in at the seed funding stage. The third investment vehicle – Accion Frontier Inclusion Fund – in which Accion is the anchor investor and there are other investors as well, the initial cheque size is $3-4 million, but if the venture does well, there can be a follow-on round, taking the total investment over three-four years to $7-8 million. With this vehicle, Accion will stay invested for up to eight years, while it has greater flexibility to decide on its exit with Venture Lab.

According to him, Accion is looking to raise the corpus of Venture Lab, from its present level of $12 million. “It is fully invested and we are seriously and strongly considering an expansion of that vehicle.” Accion is examining two options for that – from its own resources or bring in outside investors that will also have a long-term horizon.

On the impact of the government’s move to ban high-denomination currency notes, Altschul says there has been a definite short-term impact on MFIs, but this has not resulted in a decline in portfolio.

Demonetisation impact “We believe this is a short-term impact and the assumption is that it would gradually but relatively quickly get back to normal,” he says

What is interesting, he adds, is that there has not been a hit on the portfolio. “The quality of the portfolio remains sound, at least for our partners,” he adds. However, it will take up to March to assess whether there is any long-term impact.

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