Fuelling businesses for India’s healthcare transformation

The Covid-19 pandemic has overturned several well-entrenched beliefs and assumptions.

One such notion is that impact-led enterprises are limited in scale and make meagre profits as they are primarily dependent on grants.

Today, these enterprises are on the frontline, battling the pandemic and its aftermath using innovative new technologies and solutions, and helping deliver access to high quality, affordable healthcare to the vulnerable sections at the base of the pyramid. This alignment with the nation’s priorities has given them the opportunity to expand their operations and address complex health challenges at scale, which also improves their bottom line

The growing acceptance of resolving development challenges using commercially viable models has also made it imperative to use innovative financing strategies. Owing to several systemic challenges, healthcare innovators and enterprises, despite their promise, face many hurdles in accessing affordable private financing. This prevents them from mainstreaming their solutions and delivering high impact.

According to the data platform, Tracxn, a meagre 2 percent of the 4,308 healthcare start-ups launched in India till date have managed to achieve scale.

One of the most common barriers faced by health enterprises is the perception of risk in the sector vis-à-vis expected returns for the investors. Moreover, healthcare is a heterogeneous space with capital needs differing by product and company, which the traditional investor community is unable to meet.

Blended finance instruments bridge these gaps by offering an innovative toolkit that leverages multi-sector collaboration, development, and philanthropic funds to mobilise private capital in businesses that can deliver both financial and social value. These funding structures include a flexible mix of capital including debt, equity and grants, which mitigate the investment and credit risks faced by commercial investors and improve the risk adjusted return profile of the healthcare enterprises.

This “de-risked” investment environment gives investors the confidence to consider funding in healthcare enterprises which they would have normally avoided. At the same time, with philanthropic funding being used as catalytic capital to steer commercial investments into solving development challenges, development funders are likely to leverage their limited but vital investments to deliver much greater and sustainable impact.

Let’s look at PLUSS® to see how this works. PLUSS® is a materials research and manufacturing company that makes temperature-controlled shipping containers for pharmaceuticals. Despite its obvious potential for delivering the Coronavirus vaccines to far-flung areas, the company could not easily raise capital on affordable payment terms, limiting its capacity to double its production. At this juncture, SAMRIDH, a healthcare blended financing facility, supported by the U.S. Agency for International Development (USAID), provided PLUSS® the opportunity to secure the required capital through an innovative financing structure combining credit enhancement instruments such as partial risk guarantee, and social success note to make debt affordable. This enabled them to not only augment their production, but also scale up their operations. In fact, leveraging USAID’s global network, SAMRIDH is now enabling PLUSS® to access the African markets.

This support from SAMRIDH hinged on a robust blended finance model, which used philanthropic funds to unlock commercial capital for expansion of PLUSS’ business operations. The approach demonstrates how impact-led enterprises and innovators can gain access to working capital without the burden of having to pay high interest or providing collateral to mitigate the credit risks. It further highlights the merits of providing outcome-linked financing to incentivise companies to deliver clear, measurable impact in a stipulated time, which here will enable acceleration of government’s ambitious target to vaccinate all eligible populations by December 2021. Moreover, the model reinforces the need to mitigate investment risks in impact-led businesses to make them commercially viable and achieve the twin objectives of economic growth and lasting social impact.

Going beyond financial support, blended financing facilities such as SAMRIDH also play a vital role in equipping business enterprises with operational and technical guidance, strategic advice, exposure to industry best practices and expertise, which consequently enhance the viability of projects and reduces future perceived risks for investors.

The pandemic has exposed several gaps in healthcare systems, particularly when it comes to last mile delivery. Despite the obvious advantages and immediate need to transform the healthcare system with new technologies, health solutions and innovative care delivery models, the volatile and unpredictable nature of the domain makes investors wary of funding such initiatives.

Blended finance overcomes this challenge by helping healthcare innovators and enterprises with viable business models raise the funds needed to create sustainable healthcare systems in the country, at a time when it desperately needs it.