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Sustainable, scalable business model is an issue in India: Anil Sinha

Q&A with Regional Head, South Asia Advisory Services, IFC

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International Finance Corporation (IFC), a member of the World Bank Group, is the  largest global development institution focused exclusively on the private sector. In spite of a sluggish economic environment, in FY 12, IFC’s investments reached an all-time high of more than $20 billion.

In India too, where has  a  portfolio of over $3.8 billion, the corporation has been involved in several advisory roles, like advising the National Housing Bank on developing a registry for movable collateral for SME lending, and promoting integration for a common South Asia trading bloc. In an interview with Namrata Acharya, Anil Sinha. Regional Head, South Asia Advisory Services, IFC, throws light on some of the recent activities of IFC in India. Edited excerpts.


Can you throw some light on your recent projects in India?

IFC has been working with the private sector to foster inclusive and clean growth with special focus on development in India's low income states. This includes promoting financial inclusion through innovative business models. For example, we have partnered with FINO, which uses biometrics to promote financial inclusion. It has a customer base of more than 48  million people and it links financial institutions to the unbanked population of the country. We have provided advisory and technical services to 20 MFIs in India, for introducing new products. In addition, we are also looking at strengthening the financial infrastructure in the MFI space, through entities like the microfinance credit bureau. Our advisory team focuses on implementation of solutions with a result based approach.

Did the crisis the MFI sector impact your involvement in the sector?

The MFI crisis brought out IFC 's counter cyclical role. As financing to MFI sector was significantly affected, we stepped in and, in fact, made our largest investment in an MFI called Bandhan, just after the crisis. We believe MFIs with good responsible business models have a development role and hence supporting them through finance and advisory is a way to continue to reach low-income customers. IFC's MFI investment portfolio in India stands currently at about $70 million. We also feel that a wider bouquet of services should be offered to low-income customers and the financial infrastructure should also be strengthened to mitigate risks like over-indebtness. Also, we are also promoting SMART campaign, which is a global campaign to protect costumer interest through assessment and certification.

Apart from MFIs, which are the areas in the financial inclusion space, where IFC has been involved?

In the financial sector, we are also working on improving the payment system, particularly, the payment system for the underserved. We are working with the Bihar government to examine how the payment system can be improved so that the beneficiaries of government schemes, starting with health, receive payment in a timely and more efficient manner. It is a new scheme, which we took on as a pilot project in Bihar. They have accepted our recommendation.

With the central government also, we have recently entered into an agreement with CERSAI (Central Registry of Securitisation Asset Reconstruction and Security Interest of India ) for improving the process of registering movable collateral, which in turn will benefit SME financing. The National Housing Bank, is running this programme. As there is no suitable registry for movable collateral, these cannot be pledged for getting loans. This will help SMEs to pledge their movable collateral to get loans and would promote more SME lending. We have done this in other parts of the world, including China with good results.

IFC has played an active role in advising infrastructure project. What are your current projects in India?

We are looking at sectors like renewable energy. Recently, we launched a programme called Lighting India, which provides alternative energy lamps in rural areas. We have also made a number of investments in solar and wind projects. 

Has the slackening growth of Indian economy impacted infrastructure and social development projects in India?

If there is a sustainable, viable project, promoted in the private sector, with a good financial return, money is still available. There are enough funding agencies, like, state- owned banks, government and financial investors. I think, on the supply side, getting a sustainable and scalable is an issue. We have a working group on supporting and developing such innovative business models, and are looking at how this can be nurtured.

What are the major constraints for small businesses with innovative business model to scale up?

India is the hot bed of innovation. I have not seen this level of innovation and entrepreneurship, as in India, elsewhere. India can be a breeding ground for such innovative business models, which can be replicated within India and exported.

However, someone who is innovative may not be the best business manager. The bridge between good business management and innovative ideas needs to be developed as this is an area where most small businesses fail. I think, we need a support system, or an eco-system, which could be in the form of good policy framework, good technical assistance, good hand holding and mentorship, for innovative business models to succeed. Also the financing has to be segmented. There is a need for start-up venture capital, formal finance, working capital, as the business grows.

Is the South Asia market mature enough to compete with other global trading blocks?

We should be looking at South Asia as a common market. South Asia is still the least integrated region in the world. Even if we remove, only the non-tariff barriers, the business environment can improve substantially and with a spin off for the development of the South Asia countries . IFC has started a programme for the intra-regional trade in integration across Nepal, Bhutan, Bangladesh and India focused on non-tariff barriers and business to business issues.

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