Responsible Enterprise Finance

Project description

Title: Responsible Enterprise Finance
Commissioned by: German Federal Ministry for Economic Cooperation and Development (BMZ)
Country: India
Lead executing agency: Ministry of Finance
Overall term: 2013 to 2016

Context
By 2017, India’s aim is for growth to be ‘more rapid, more sustainable and more inclusive’. With 12 to 13 million extra young people entering the labour market each year, between 120 and 130 million new jobs will need to be created by 2025. The private sector, particularly micro, small and medium-sized enterprises (MSMEs), is expected to be a key driver here.

The MSME sector, with roughly 44 million micro companies and several hundred thousand small and medium-sized businesses, has an enormous economic, social and environmental impact. Strong international competition and pressure to use natural resources sustainably are major challenges. By modernising and adopting green and inclusive innovations, India’s MSME sector can create new economic opportunities and strengthen its long-term competitiveness.

In order to become more competitive, MSMEs, start-ups and social enterprises require access to financial services. However, financial institutions are currently unable to meet the demand and will have to extend their offerings for these businesses. In addition, the financial sector can be a main driver for a more sustainable growth path by incorporating social and environmental criteria into their operations and financing decisions, offering specific financial products and services which incentivize businesses to become more resource- and energy-efficient, as well as by providing capital to social enterprises and start-ups that are creating jobs and access to basic products and services such as health, water and energy for poor sections of the society.

Objective
The supply of risk capital and loans for sustainability-oriented investments of micro, small and medium-sized enterprises (MSME) has improved.

Approach
GIZ has joined forces with the Small Industries Development Bank of India (SIDBI) to incorporate innovative methods of MSME funding into the financial system. Together with SIDBI, GIZ supports banks and investors in making environmental and social standards an integral part of their financing decisions. The introduction of a tool to factor environmental and social risks into investment and lending decisions, as well as training courses for banks on how to use the tool, are two of the measures being implemented in this area.

The programme helps banks to introduce new lending products and services to promote sustainable investments, to enable partnerships with technology providers, business associations and other service providers, and support MSMEs in meeting the requirements of financial institutions. One example is the GIZ-backed development of a energy efficiency service offering for analysing, implementing and validating energy savings in businesses.

GIZ facilitates access to risk capital for start-ups and social enterprises that offer innovative solutions for poorer sections of the society. Here, the programme cooperates with actors from the start-up eco-system such as incubators to support investment-readiness of enterprises as well as banks, investors and business angels.

In addition, GIZ supports the development and introduction of national voluntary guidelines for responsible financing. Financial institutions are made aware of the importance of measuring the environmental and social impacts of their own banking activities, such as CO2 emissions, as well as of the financial products and services they offer.

Results
Numerous representatives of the banking sector and the Indian Banks’ Association have established thematic working groups where they draw up voluntary guidelines for greater sustainability in the banking sector and approve action plans.

In the area of risk capital for social enterprises, the programme has helped to set up a virtual incubation platform (http://www.startupwave.co) for social enterprises and start-ups. To date, more than 350 enterprises have used the platform. The programme has also helped set up the impact fund performance measuring and reporting tool PRISM, which allows fund to assess the impact of their fund as well as portfolio companies (http://www.prismforimpact.com). The tool has been tested and used by 9 Funds.

Contact

Wolfgang Leidig
wolfgang.leidig@giz.de