Indians don't have a private equity mindset, says Viswanatha Prasad

If we go to an Indian HNI they assume it means lower returns for them

After a career in mainstream financial services, Viswanatha Prasad launched Caspian in 2004, with a first round of funding of around Rs 100 crore, and invested in Ujjivan, Janalakshmi and Equitas, the three big winners that are transforming into small finance banks. Caspian is now raising its fourth fund and looking to invest in food and agriculture, clean energy and energy efficiency and financial services. Prasad, managing director of Caspian, spoke to Anjuli Bhargava on why so little Indian money flows into the impact sector.

Edited excerpts:

Based on your experience, why do you think there is so little Indian money in the impact space so far?

The lack of Indian investors is felt not only in the impact space. Typically, Indian money — even in private equity funds — is only 10-15 per cent.

One of the main reasons is that we as Indians don’t have a private equity kind of mindset — be it individual or institutions. One has to stay invested for 7-10 years. We don’t have that patience. A lot of the money goes into real estate funds that can offer you an exit in three to five years — at least, that’s the promise. That seems to be our time horizon. Second, as a nation and unlike some of the more developed countries, wealth is quite new to us. It is not widespread and has not been around over a long period of time. So, wealth is allocated to investments that make a very good return and partly to philanthropy. 

Typically, rich companies or individuals allocate 80 per cent of their funds to investments in public markets and 20 per cent to grants. There is no middle path — money allocated to finance projects that can be sustainable and can deliver a social impact. It will take a second generation for them to understand the double bottom line return — that you can make an investment and can also make impact. This has not been fully understood.

Some Indian businesses — the Tatas (Ratan Tata, for instance), Nandan Nilekani in his private capacity — do seem to be entering this space.

Yes, and that is good news. But the amounts currently remain small. At present it’s Rs 2 crore in a hospital venture or in a technology-led education venture but I think for significant amounts to flow into this space, we will have to wait for one more generation.

As of now, if we go to a wealthy Indian HNI or someone who has the funds to invest and say we will be investing in the impact space, they assume it means lower returns for them. This may or may not be true. 

Global data show impact funds give comparable returns. We don’t have the data yet for India backing this assumption. I expect some data to be available quite soon, which will be similar to the international trends.

Why have you, at Caspian, stuck primarily to micro finance?

We have invested venture debt in sustainable agriculture, and this year, we started investing in health. We have added clean energy to our mandate and made a few transactions.

If you look at the India data, it will appear like financial inclusion is the rock star and the rest of the sectors are laggards. But as large investors begin to come in and the sector matures, it is time for players like us to look elsewhere. The risks and the returns go down. 

In the long run, it will not be restricted to just financial inclusion and microfinance space. We look to add value by being on the ground and close to the entrepreneurs in their early stages of growth. We help impact businesses deliver value to both clients and investors. We are excited by many of the newer areas.