Will invest $2-3 billion a year in India, says IFC country head Zhang

Jun Zhang speaks to Business Standard on how IFC views India's growth story. He says the institution will invest $2-3 billion in the country every year in the next few years

International Finance Corporation (IFC), part of the World Bank Group, is the largest global development institution focused on the private sector in emerging markets, and one of the biggest investors in India. JUN ZHANG, its country head, talks to T E Narasimhan on its India’s growth story. Edited excerpts:

How bullish are you about India’s growth story?

We are long-term investors in India, and very positive about its prospects. India is a very large country and economy; the private sector has a large and critical role to play. In the past five years, India has dramatically improved its ease-of-doing-business ranking (at the World Bank). Rules and regulations are conducive to investments. We are not bothered about short-term issues; those exist everywhere. 

How important is India for IFC? 

Globally, this is the largest country portfolio for us; 12-14 per cent of IFC’s (total) exposure is in India. Our advisory and investment operations in the country reached $6.9 billion in long-term investments in FY19. In that year — the IFC year is July to June — we invested $2.3 billion (nearly Rs 16,500 crore) in India’s private sector, including funds mobilised from other like-minded investors. We will invest $2-3 billion every year in India in the next few years, from IFC's own account. IFC also brings in other like-minded investors through mobilisation. If we add that, it will significantly increase the funds we bring to the country.

At a time non-bank financial companies (NBFCs) are facing issues, IFC seems positive about the sector, going by recent investments.

Our intent is to pump credit into the economy. NBFCs represent a critical last-mile lending connection to MSMEs (micro, small and medium enterprises), affordable housing and commercial vehicles — critical parts of economy that need credit support. This sector’s credibility must be maintained. After IL&FS, banks were seen to be holding back on funding to NBFCs. That could affect the economy.

To address the gap, we have been focusing on NBFCs in the past one year. In October 2018, we decided to launch a $1-billion masala bonds (issued outside India but denominated in rupees) issue, of which the first lot of $100 million was immediately subscribed. This, to an extent, helped calm the markets. It showed many investors were willing to come to India and take the risks, particularly currency risks. 

Which other sectors look attractive to IFC?

Definitely MSMEs. IFC is one of the biggest investors in India, backing roughly two-third of the active growth funds investing in unlisted small-cap and mid-cap firms. Infra remains a priority for us because it gives a fillip to the economy and creates jobs. Renewable energy (RE) is important for sustainable growth. IFC-funded RE companies account for 15 per cent of the segment's capacity in India. 

Micro finance, electricity and affordable housing are also important to us. For affordable housing, IFC invested around $1 billion (Rs 7,000 crore) in the past three years, while its partners invested three to four times the amount.

How does IFC position itself, as a financial investor or a strategic one?

We see ourselves as institution builders. In all our engagements, the three pillars are inclusion, productivity and sustainability. In every investment, we don’t only give money — we sit on the boards. In the six decades IFC has been in India, it has helped create private sector giants such as HDFC, Bharti Airtel, Bandhan Bank, IDFC and others. In micro finance, half the loans disbursed today are by IFC-invested companies; we have touched 70 million lives directly and indirectly through our micro finance work.
 

Are you happy with the exits (on your investments)?

Our experience has been quite good. Dollar returns have been quite healthy. We had some failures; they are inevitable but, overall, quite good. Over the years, we have seen that the rules governing stock exchange listing have become more comprehensive and regulators have become more capable. There is always room for improvement but, overall, our experience has been highly positive.