1 Over the last 15 years, Northern Arc has built a strong presence across six focus sectors like MSME, microfinance, and agriculture finance. What unique challenges have you faced in scaling these portfolios, and how do you ensure consistency in impact across sectors with varying needs?

At Northern Arc, our goal has always been to bridge the financing gap for underserved segments. We've expanded across MSME, Microfinance, Agriculture Finance, Vehicle Finance, Affordable Housing, and Urban Consumer Finance. Each sector comes with its own set of challenges. For instance, microfinance and agriculture borrowers face creditworthiness concerns due to the cyclical nature of agriculture. Similarly, assessing income in the MSME sector can be tricky, and ensuring accessibility for housing, vehicle, and consumer finance presents its own hurdles. Recently, we launched our Climate Fund, aligning with the global shift towards sustainability.

To tackle these complexities, we focus on three key aspects:
Customer-Centricity: We take the time to understand the unique challenges of borrowers in each sector and tailor our solutions accordingly.
Seamless Credit Flow: Our expertise, combined with strong technology platforms, ensures a smooth and consistent credit flow while mitigating risks.
Data-Driven Decision Making: With our proprietary platform, Nimbus, we use real-time insights to strengthen our underwriting process, effectively managing risk across sectors.

Our efforts have been impactful. As of September 30, 2024, we've disbursed approximately ₹1.9 trillion in financing, benefiting over 111 million lives. By understanding sector-specific needs, we remain committed to delivering scalable and meaningful solutions.

2 Northern Arc operates at the intersection of financial inclusion and impact investing. How do you balance delivering competitive financial returns to your investors while driving meaningful social and economic change in underserved communities?

We believe in Profit with Purpose—creating a sustainable business that delivers both financial and social impact. Our approach as an ecosystem player and catalyst has allowed us to mobilize capital beyond our balance sheet. Working with over 340 partners and 1,000 investors, we've enabled nearly ₹2 trillion in capital flow across sectors while maintaining profitability throughout our 15-year journey. This track record has garnered strong support from impact investors and DFIs.

Our ability to balance returns and impact is built on a few key levers:

• Technology & Data: Platforms like Nimbus, nPOS, AltiFi, and Nu Score provide a deep understanding of risks and opportunities, allowing us to optimize our offerings and expand the flow of credit.
• Filling Credit Gaps: We identify sectors with significant financing gaps. For instance, while MSMEs contribute 30-40% to India's GDP, they receive less than 30% of formal credit. Similarly, rural areas contribute 30-35% to GDP but receive only 10% of formal credit.
• The Flywheel Effect: We identify high-growth sectors, maintain rigorous risk management, and integrate impact considerations into every investment decision.

A great example is our investment in renewable energy and sustainable mobility. We've provided early-stage debt to companies like BluSmart, supporting their vision for cleaner transportation. Our funds consistently generate 13-14% returns, demonstrating that financial prudence and social impact can go hand in hand.

3 Traditional risk models often exclude underserved communities due to perceived risks. How has Northern Arc innovated its risk assessment frameworks or financial products to better cater to these markets while assuring investors of portfolio stability?

Traditional risk models often fall short when it comes to assessing underserved communities, so we’ve taken a different approach:

Our ability to balance returns and impact is built on a few key levers:

• Data-Driven Risk Assessment: With over 40 million time-series data points, we refine our risk models in real time, incorporating evolving borrower behaviors and market trends.
• Portfolio Diversification: We cap exposure to any single sector at 35% and limit district-level exposure to 5% to ensure balanced risk.
• Technology-Enabled Efficiency: Nimbus streamlines underwriting, KYC checks, and credit scoring. This allows us to process up to 25,000 loans daily, with customized rules for each partner.

By leveraging technology and data, we ensure that even those with limited credit histories can access finance, while still maintaining a stable and high-performing portfolio.

4 With the recent launch of the Finserv Fund and Climate Fund, Northern Arc is expanding its impact across financial inclusion and sustainability. How do these funds align with your broader mission, and what specific challenges do you anticipate in scaling financial inclusion and sustainable solutions?

The launch of the Finserv Fund and Climate Fund underscores our unwavering commitment to addressing critical credit gaps while upholding our core mission of driving financial inclusion and sustainability. These funds exemplify our strategic focus on delivering high-quality financial products that seamlessly integrate impact and competitive returns.

The Finserv Fund leverages our deep expertise in credit underwriting to offer competitive returns of 13-14.5% while effectively addressing the growing demand for retail credit within the financial services sector.

On the other hand, the Climate Fund, which garnered significant investor interest and achieved rapid closure, focuses on both mitigating and adapting to climate change. This includes financing projects in renewable energy and sustainable agriculture, sectors vital for environmental sustainability and economic development.

Scaling these initiatives presents several key challenges:

• Expanding Reach: Reaching underserved populations in rural areas and tier-3/4 cities, where access to formal credit remains limited, requires concerted effort and innovative distribution strategies.
• Balancing Impact and Returns: Maintaining a delicate balance between achieving strong financial returns for investors and delivering meaningful social and environmental impact is crucial for long-term success.
• Navigating the Regulatory Landscape: Adapting to the evolving regulatory environment surrounding sustainable finance and renewable energy necessitates continuous monitoring and strategic adjustments.
• Driving Technological Innovation: Continuously enhancing our technology platform is essential for optimizing fund deployment, refining risk assessment methodologies, and streamlining credit delivery processes.

Despite these challenges, we are confident in our ability to effectively scale these funds. Our deep market knowledge, proven track record of success, and robust technology platform provide a strong foundation for driving meaningful impact while delivering attractive financial returns for our investors.

5 For the Finserv Fund, how are you addressing the unique needs of MSMEs, affordable housing, and agriculture sectors to ensure these underserved markets are adequately financed? For the Climate Fund, how are you balancing the financial and environmental risks associated with financing renewable energy and sustainable agriculture projects?

The Finserv Fund is designed to address the specific needs of MSMEs, affordable housing, and agriculture sectors. To do this, we have implemented several strategies:

• Sector-Specific Focus: We tailor our offerings to align with the unique requirements of each sector. For instance, agriculture financing is structured to account for seasonal cash flows, while affordable housing loans are designed for longer-term repayment periods.
• Risk Mitigation Through Diversification: By diversifying across geographies, products, and customer segments, we limit exposure and ensure balanced portfolio performance.
• Granular Deployment: Our average ticket size of ₹20–25 crore ensures that funds reach a broader base of smaller enterprises, which are often overlooked by traditional lenders.
• Technology-Driven Solutions: Platforms like Nimbus enhance underwriting and monitoring capabilities, allowing us to deliver credit efficiently while maintaining portfolio quality.

Through these measures, the Finserv Fund bridges critical credit gaps in sectors while upholding a high standard of risk management and returns.

The Climate Fund focuses on financing renewable energy projects and sustainable agriculture, two areas crucial for promoting environmental sustainability. Managing both financial and environmental risks in these projects is essential, and we achieve this through the following strategies:

• Rigorous Underwriting: Our underwriting engines are tailored to assess the economic viability of renewable energy installations and sustainable agricultural practices.
• Technology-Driven Monitoring: Advanced data analytics allow us to monitor both financial performance and environmental outcomes, ensuring that projects align with sustainability goals.
• Mitigation of Long-Term Risks: Loan structures are designed to align repayment periods with the economic benefits of the projects. For example, solar installations are financed with timelines that match the cost savings they generate, ensuring project viability.
• Strategic Fund Allocation: We deploy capital in high-impact sectors while adhering to conservative risk practices, safeguarding both our investors and the environment.

This careful balance allows us to scale sustainable financing while staying aligned with our long-term mission of promoting economic inclusion and environmental stewardship.

6 Northern Arc’s proprietary end-to-end technology platform is central to your operations. How has it evolved to improve credit delivery, enhance risk assessment, and expand access to underserved markets? Are there specific innovations or features that have been game-changers in your journey?

Northern Arc’s proprietary technology platforms like Nimbus, nPOS and Altifi have significantly transformed credit delivery and risk management, enabling the company to expand access to retail credit markets. The platform’s innovations have been pivotal in the company’s journey, and they continue to evolve to meet the needs of these segments.

One key feature is the real-time operations offered by platforms like Nimbus. This feature enables real-time underwriting, KYC verification, credit scoring, and disbursement, processing up to 20,000–25,000 loans daily. This system ensures seamless credit delivery to even remote regions, overcoming the geographical barriers often faced by certain sections of the population. The platform also emphasizes scalability and customization. It supports thousands of underwriting rules that can be tailored to diverse borrower profiles, allowing Northern Arc to deliver targeted solutions to a wide variety of customer needs.

nPOS is Northern Arc's proprietary technology co-lending solution. It operates as a cloud-based, API-enabled platform designed to strengthen and infuse greater efficiency to loan origination, underwriting, disbursement, and collection reconciliation processes. This state-of-the-art platform will facilitate seamless co-lending and on-lending activities, connecting banks and other financial institutions.

Another game-changing innovation is AI-driven risk assessments. With 40 million time-series data points on loan performance, the company leverages artificial intelligence and machine learning to refine its risk assessments continuously. This enables better decision-making and improves the quality of the loan portfolio. In terms of democratizing access to credit, Northern Arc’s platform - Altifi allows retail investors to participate in credit opportunities, promoting broader inclusion in high-quality fixed-income investments. This feature expands access to capital while offering attractive investment opportunities to a diverse group of investors.

Specific innovations that have had a major impact include:

• AI-enhanced underwriting, which ensures continuous learning and risk mitigation with every transaction processed.
• Property valuation for secured loans, utilizing digital tools to assess collateral for small business loans.
• Wider investor participation through the tokenization and digitalization of investment paper. The ticket size is as low as Rs.10,000 which makes it easier for diverse investor classes to participate in these opportunities.

These advancements have enabled Northern Arc to effectively penetrate rural and tier-3/4 markets, ensuring that all communities have access to the credit they need to thrive.

7 Access to credit can be transformative for women, yet they face significant barriers in many sectors. How does Northern Arc prioritize gender-focused financial inclusion, and what tangible outcomes have you observed from empowering women through credit access?

At Northern Arc, gender-focused financial inclusion is a core pillar of our mission. This commitment translates into tangible impact, with a large number of the lives positively impacted by our work being women.

We actively pursue this objective through various avenues:

• Developing Women-Centric Products: We create and deliver financial products specifically designed to meet the unique needs of women entrepreneurs, small business owners, and households, empowering them to achieve economic independence and drive positive change within their communities.
• Fostering Internal Gender Diversity: We champion gender diversity within our own organization, with strong female representation across leadership roles. This commitment extends beyond our internal structure, with former executives contributing to global platforms like 2X, demonstrating our dedication to advancing women's empowerment on a broader scale.

The impact of these efforts is profound. Empowered women across rural and urban India are leveraging credit to start and grow businesses, enhance their livelihoods, and access essential services. This not only improves their own lives but also contributes significantly to community development and economic growth as they reinvest in their families and local economies.

8 As the impact investing landscape in India evolves, where do you see the most significant opportunities for growth, and what systemic gaps still need to be addressed? With the recent growth in AUM and a Rs. 500 Cr equity infusion, how is Northern Arc positioning itself to capitalize on these opportunities? What strategic initiatives are being implemented to enhance financial inclusion and tackle sustainability challenges, particularly in sectors like MSME?

The Indian impact investing landscape presents significant growth opportunities, particularly in sectors such as MSME, affordable housing, and agriculture, which continue to face significant financing gaps. The increasing demand for sustainable solutions, particularly in renewable energy and sustainable agriculture, also presents a compelling area of growth.

One of the critical systemic gaps in India is the low credit penetration, hindering economic growth and financial inclusion. Another pressing challenge lies in the policy and regulatory framework. Streamlining regulations around sustainable finance and alternative credit mechanisms could significantly enhance scalability and drive sectoral growth. Furthermore, raising awareness and building capacity among borrowers and investors are essential to unlocking the potential of innovative financial solutions.

Northern Arc is well-positioned to capitalize on these opportunities. Our recent Rs. 500 Cr equity infusion will support strategic initiatives to:

• Expand our reach: We will leverage this capital to expand our reach in high-growth sectors, including renewable energy, sustainable agriculture, and affordable housing.
• Strengthen our technology platforms: We will continue to invest in our technology platforms, Nimbus, nPOS and Altifi, to enhance data analytics, improve risk assessment, and streamline operations, enabling us to serve a larger number of borrowers more efficiently.
• Drive innovation: We will actively explore and develop innovative financial products and solutions that address emerging needs and contribute to a more sustainable and inclusive financial ecosystem.

By adhering to a strategy of responsible growth and leveraging our expertise in financial inclusion and impact investing, we are confident in our ability to drive significant social and economic impact while delivering attractive returns for our investors.