LP Connect

01. DEG has successfully been supporting enterprises in emerging markets through their financial and advisory programmes for the past 60 years. Could you shed some light on DEG's investment portfolio in India? What are the major focus areas or sectors, across which DEG's Indian portfolio is distributed?

DEG has been investing in India for over two decades and has committed approx. EUR 1.50 billion in the country for development of the private sector. India continues to remain an important country for DEG due to India’s leading role in contributing to the global developmental and sustainability goals; the importance which is reflected in DEG’s single largest portfolio country with 5% exposure in India. DEG’s India portfolio presently stands at EUR 500 million and remains well diversified across key sectors of the Indian economy i.e. financial services, infrastructure, manufacturing and services.

02. Could you explain briefly DEG's investment strategy in India for the calendar year 2021? Does DEG plan to expand its footprint in India?

India’s rising demand for long-term, socially responsible and purpose-driven capital is a good fit with DEG’s strategic objectives on impact and climate financing strategy. To be part of India’s economic and developmental growth story, DEG is very much committed to grow its portfolio in India. Due to the pandemic, our current focus is on our existing portfolio and making sure that we provide adequate support measures to our investee companies and borrowers during these dynamic and uncertain times. At the same time, DEG is working on transactions which will get disclosed once they reach their successful closure.

03. DEG uses a robust in-house tool DERa (Development Effectiveness Rating) to monitor multi-dimensional impact through a score with qualitative categorization. This is quite remarkable. Could you share some of the key learnings and challenges in implementation of DERa score, and how it has enabled project outcomes for partners?

Our rating tool DERa builds on international best practice by using predominantly quantitative and harmonised indicators; it is applied to the entire portfolio and all new commitments since January 2017. The development of DERa reflects more than 15 years of experience with DEG’s Corporate Policy Rating tool which leverages existing project and/or client data to measure development outcomes across five key categories that are guided by SDGs i.e. Decent Jobs, Local Income, Market and Sector Development, Environmental Stewardship and Community Benefits.

The uniqueness of DERa is that it combines quantitative and qualitative data and uses existing data as much as possible to achieve maximum efficiency and reduce information burden on partners. DERa allows for the development impact of each individual customer to be measured at the start of the investment and subsequently each year in the portfolio. This means that DEG can monitor each customer’s contribution to the SDGs at all times, and can work with them towards improvement in a targeted manner.

The overall portfolio under DERa qualitative categorization stands under “Good” category. DEG’s existing customers, for example, employed around 2.3 million people last year and generated EUR 120 billion in local income in 2020 alone.

04. DEG joined its fellow G7 Development Financial Institutions (DFIs) in launching the 2X challenge. What would be your recommendations for Asset Owners and Managers in India to fortify gender-lens investment in their transactions?

DEG is a founding member and currently the Chair of the 2x challenge which is targeted towards mobilizing capital for companies that are owned or managed by women or that specifically empower women. Since 2018, when this program was developed, DEG itself has so far contributed around EUR 490 million in debt and equity, which are earmarked for companies with women in management positions and for financial intermediaries to finance women owned SMEs.

Women make significant contributions to the economy in their role as entrepreneurs, fund leaders, on farms, employees or through unpaid care work at home. Yet as far as decent jobs are concerned, women still do not have the same opportunities in the labour market or in management positions as men do. This is why DEG is committed to promoting greater participation of women in developing countries. With its gender-lens investing approach and experience in developing countries, DEG can recommend investors to provide improved access and opportunities to women entrepreneurship, leadership opportunities, decent and skilled employment, finance, and products and services, thereby enhancing their economic participation. Investing in women means investing in the largest global market of the future and unlocking great economic potential.

05. Given DEG's strength and expertise in areas of funding, advisory and technical assistance - how has DEG's support helped enterprises drive better impact performance?

Through the targeted use of "blended finance", investment projects can be supported which, due to their risk profile, could not be financed with private funds alone. From our point of view, the following principles should be observed when using blended finance: additionality, crowding-in, commercial sustainability, reinforcing markets and promoting high standards.

To drive better impact performance, apart from funding, advisory and technical assistance are also important. From our point of view, it is helpful to exchange ideas with companies about targeted advisory measures that increase the impact of the respective investment project. For example, DEG has supported agricultural producers with technical assistance dedicated to energy efficiency measures, so that they could invest in water efficiency and resource protection.

06. DEG has a presence across all emerging and developing markets. With a majority of its funding being directed to Asia –

• a. What are some strengths that the Indian market possesses vis-à-vis the rest of Asia?
  India’s strengths lie in India’s mixed economy set-up which offer diversified growth drivers fostering balanced growth, impetus on private sector’s participation, the demographic set-up comprising of majority of young population India can lever upon in comparison to global markets (but it can also become a challenge if sufficient jobs are not created), efficient services sector, etc.
• b. What should the Indian impact investing ecosystem learn from our neighboring (rest of Asia) markets?
  We believe India has done well in the impact investment space due to early presence and experiences from the micro-finance sector and other social enterprises. Nonetheless, challenges remain in terms of scalability, regulatory framework, access to capital, etc. and in our view these challenges apply across the Asian continent. The markets will learn from each other as this sector matures and growth in this sector becomes more balanced to develop as a new asset class.