Responsible Lending, Impact Investing

Responsible Enterprise Financing – Phase I

Improve the supply of risk capital and loans for sustainability-oriented investments of micro, small and medium-sized enterprises (MSMEs) for their resource efficient growth.

Access to finance often is the bottleneck for the growth of MSMEs. Therefore, banks and other financial institutions play an important role as providers of financial services. They can also nurture the right kind of growth (clean and resource efficient) by providing the right incentives for MSME to integrate environmental, social and governance concerns (i.e. ESG factors) into their business. Additionally, they can provide capital to develop socially responsible products, processes and business models. However, a major challenge remains in terms of capacity building and development of products and instruments, to transform the sector to better serve MSMEs needs.

The project Responsible Enterprise Finance focused on the financial sector act as a lever aimed to set MSMEs on more resource efficient growth path, thus becoming drivers of innovation in priority sectors of government. For this banks, venture capital funds and service providers such as incubators were key intermediaries. The project was completed in 2016 resulting in a significant impact.

The Result: Numerous representatives of the banking sector and the Indian Banks’ Association have established thematic working groups where they draw up voluntary guidelines for greater sustainability in the banking sector and approve action plans. In the area of risk capital for social enterprises, the programme has helped to set up a virtual incubation platform (www.startupwave.co) for social enterprises and start-ups. To date, more than 350 enterprises have used the platform. The programme has also helped set up the impact fund performance measuring and reporting tool PRISM, which allows fund to assess the impact of their fund as well as portfolio companies (www.prismforimpact.com). The tool has been tested and used by 9 funds.

Contribution to Sustainable Development Goals (SDGs)

 

APPROACH

Responsible Banking

Strengthen the capacities of banks to integrate ESG concerns, and to offer corresponding products by development of broad level policy guidelines for banks defining the business areas to be covered, manner of integration in existing processes and systems and allocation of responsibilities in the banks.

Responsible Investment

Support mainstream investors to integrate ESG concerns. Financial institutions would minimise environmental footprint in internal operations by investing in environmentally friendly products and support inclusive and equitable human and social development.

Impact Investment

Strengthen impact investors and incubators that provide finance and services to social impact businesses. This would enable easy access to risk capital for start-ups and social enterprises that offer innovative solutions for lower income populations.

 

KEY ACHIEVEMENTS AND INITIATIVES SO FAR...

  • Developed a framework and toolkit for ESG risk assessment for the lending process in banks.
  • 120+ MSMEs gained access to responsible finance schemes.
  • The proportion of investments in the fields of energy efficiency and women entrepreneurs increased by 106 % and 1180 %, respectively.
  • 23 banks and other financial institutions covering 65 % of the MSME market have developed and adopted National Voluntary Guidelines for responsible banking.

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