1 Could you share with our readers, your investment thesis and key sectors that you are focusing upon? What is the nature of financial solutions that you extend to MSME borrowers?

Nabsamruddhi is pre-dominantly a B2B finance NBFC subsidiary of NABARD, catering to the non- agriculture sector with an ESG focus. The focus is on strong ethics, good governance, transparency, inclusivity. The AUM of the company is around Rs. 1500 crore which is managed through a branchless model and a team of 30 dedicated and passionate employees, 52% of whom are women. We are a 2X company with 60% of senior management being women while the last 3 CEOs were all women as well.

Further, during 2021-22, the strategy of the company was revisited whereby Green & Wellness finance, Fabrics & Textiles and Handicrafts value chain were identified as focus areas so as to give it a more distinct character. These segments are aligned to NABARD’s mandate as well as National and Global priorities. More than 45% of disbursements over the last 2 years have been channelized towards these segments and as on date, around 40% of the AUM comprises of these focus activities. MSMEs in these value chains are supported through term loans and working capital term loans through our partner NBFCs. Further, Nabsamruddhi also supports these segments through capacity building, policy advocacy and thought leadership. Taken together, they cater to 9 out of the 17 SDGs.

Wellness finance which includes WASH in its scope steadily scaled up and WASH funding emerged as our champion segment over the last 2 years, recognising the criticality of WASH in augmenting health, productivity, disposable income and hence sustainability of the real and hence the financial sectors. World Health Organisation and UN studies have flagged that Unsafe water supply and sanitation cause an estimated 1.6 million deaths per year worldwide, and water related diseases are found to be responsible for 80% of diseases and deaths in developing countries. Health directly impacts productivity and income- in fact inadequate WASH accounted for a loss equivalent to 6.4% of India’s GDP according to a World Bank study.

Recognising this, Nabsamruddhi escalated its WASH funding initiatives through stakeholder connects, influence, education and concessional loans. Cumulatively ~Rs.400 crore of WASH loans have been disbursed through 32 partners so far.

These efforts resulted in positioning Nabsamrudhi in a leadership role as a Eco-system builder in WASH funding, being the largest wholesale debt provider for SDG6 among homegrown NBFCs, largest wholesale debt funder for last mile WASH and the only homegrown wholesale debt provider covering all sectors (microfinance, MSME, affordable/rural Housing) and entire risk rating spectrum (including unrated NBFCs, Non-profits & trusts) under WASH. We have been recognised for our efforts, having been awarded the Sa-dhan Water-org WASH award twice in a row in the Capital Providers category in 2022 and 2023.

These were boosted by Special Concessional refinance from our parent NABARD which is passed on to our client along with further concessions from our end. Technical support from Water.org with whom we signed a MOU two years back helped to scale up our WASH portfolio substantially. The partnering with technical players has enabled us to ensure blended and structured finance for our clients through pro bono tech support, capacity building grants, cash incentives, which helps in managing the pricing of our products while third party guarantees are being explored.

2 Extending debt to small businesses or micro enterprises is perceived to be risky by most financial institutions. What has been your experience with this space?

What kind of investment thesis do practitioners need to be mindful of while extending loans to the micro and small borrower segment?

For promoting financing to its focus segments, Nabsamruddhi lends to NBFCs, non-profits, trusts and societies spanning the entire geography of the country raging from local level, small sized entities (< Rs. 20 crore AUM) to large sized NBFCs (Rs. 10k crore AUM) with Pan India operations. We have further relaxed our norms to cater to unrated NBFCs with AUM up to Rs.100 crore so we cover the entire risk rating spectrum except for AAA- and above as these entities can be supported by our parent NABARD. We look at entities having 3 years profitability however deviations are made for the impact focused NBFCs. The mandate is to reach the unreached so as to ensure sustainable livelihoods and rural prosperity though customer segments in semi-urban areas while SMEs catering to rural and semi-urban segments also fit into our narrative. 90% of our ~3 lakh end borrowers are women. Practitioners need to focus on governance and intent while financing micro and small borrower segments as entities which believe in creating an impact and adding value sustain in the long run. Trust is a critical factor in lending and trust is augmented through good governance, transparent systems and processes and intent.

3 NABSamruddhi recently launched the Climate-Ready WASH Funding program. Could you share with us some more details on this program?

What kind of segments within the WASH value chain are you looking to support?

Recognising the two-way nexus between climate and change and unsafe WASH and to ensure a sustainable WASH ecosystem, Nabsamruddhi launched the innovative Climate Ready WASH Funding programme in November 2023 to ensure sustainable WASH solutions in climate vulnerable areas based on the CEEW report and have financed eight loans under the same while exposure visits and collaborative partner specific meets have been conducted through our technical partners Water.org and FINISH Mondial. Participatory Rural Appraisal, training and deployment are the next steps for microfinance sector while MSME financing has commenced through pipeline of proposals from Water.org. This initiative has positioned us as a Pioneer in financing climate ready WASH. Recently we had addressed Wash Credit events at Bangladesh and East Africa where our initiatives were appreciated by the stakeholders of the Global South extending into an invite to Nabsamruddhi to replicate the same in these countries as well. On World Water Day on 22 March 2024, we kick-started the Climate Ready WASH awareness campaign covering 40 camps in 7 states to build capacities for absorption of credit through adoption of climate smart WASH solutions such as rain water harvesting or ground water recharge, flood resilient toilets, water saving toilets, rain water harvesting for storage, solarisation of water pumps among others.

While green finance will remain our focus, WASH funding will continue as our flagship product as we realise that the health of the Planet and its People are interlinked. Climate resilient WASH has been recognised as the means to sustain both. COP27 was a turning point in conversations round Climate and WASH through call to action to ensure clean sanitation for 3.6 bln people by 2030 and the AWARE programme which ring ‘Water’, front and centre in Climate dialogues. COP28 took this further by adopting the Global Methane pledge to reduce methane emissions by 30% from 2020 levels by 2030 to eliminate over 0.2˚C of warming by 2050- given that 4.2 bln people use unsafe sanitation systems and Pit latrines contribute 1 to 2% of methane emissions, if scaled to global slum populations, composting alone can reduce 44% of methane emissions. Nabsamruddhi’s efforts in funding Climate smart WASH will be in sync with these global goals.

We intend to cover the entire WASH value chain so as to ensure cost effective, speedy and efficient delivery of WASH products and services. While the demand side is being addressed through our MFI and HFC partners, the supply side is being sought to be supported through NBFCs as well as directly through project loans towards innovative climate smart WASH solutions. For technical evaluation, the company is leveraging its intricate relationship with Water.org., Sa-dhan, FINISH, WASH Innovation Hub, Toilet Board Coalition, Climate Policy Initiative and is in the process of collaborating with ISB, USDFC, GIZ, ACCESS Development Services, IFAD and other stakeholders for upscaling its blended finance offerings.

4 Given that you work closely with microfinance organisations, what are some of the challenges you face in deploying more funds to MFIs?

What are some of the interventions that you, as a lender, seek from the ecosystem as a whole, that could mobilise more funds to such borrowers especially in segments like WASH and green finance?

The Microfinance sector is more vulnerable to external shocks as it caters to the marginalised segments of the economy. However, the sector has also shown its resilience in the face of multiple adverse events. Geographical concentration and lack of professionalism among the smaller, local level MFIs are challenges we face but we have been able to support the small sized, unrated or low rated, remotely located MFIs too with suitable handholding, concessionary terms, capacity building and continuous engagement. Regarding the impact at ground level, the financial interventions of NSFL have enabled 3 lakh ultimate beneficiaries to contribute to reduction in total CO2 emission, increase in annual household income & consequently, savings, improved health and hygiene, reduced health related expenses, gender equity & empowerment.

Blended finance, structured finance, concessional lines of credit, soft loans and pro bono technical support are some of the ecosystem supports that are required to upscale financing of microfinance borrowers especially in green and WASH finance.

5 We see Blended Finance structures emerging as a strong area of interest amongst financial institutions, which can leverage both concessional and commercial capital.

What are some of the segments within SME Finance or microfinance that could benefit strongly from blended finance interventions?

What are the factors or risks associated with the sector that prospective investors need to consider while participating in such structures?

Green and wellness are prime segments that can benefit hugely from blended finance interventions. The SMEs which are engaged in providing innovative solutions for these segments require support for R&D, deployment of technical personnel as well as for upscaling their operations. Plain vanilla debt blended with grant funds can help such SMEs manage pricing and costs while focusing on further product improvements. NABARD had experimented with such models under its PODF and UPNRM initiatives which are models that can be replicated for mainstreaming.

Risks associated with investing in such structures would include scope for withdrawal of grant or soft loan if covenants are not fulfilled; however by bringing in non-funded support in the form of FLDGs, SLDGs or other guaranteed products, the same can be mitigated.

6 Going ahead, what are the priority areas for NABSamruddhi? What are some of the solutions or sectors that you would like to focus upon?

Nabsamruddhi would be deepening and widening its exposure in WASH financing going forward. The company is now venturing into Co-lending especially for financing its focus segments which will help in garnering valuable insights into these while direct project financing has been initiated as well. We are exploring digitised platforms for enabling financing of WASH MSMEs as well as household level solutions.