Dutch development bank FMO has provided debt financing of $25 million to Indian non-banking financial company (NBFC) Northern Arc, it said in a statement.
The Chennai-based digital debt platform said it will use the capital for on-lending to financial institutions that focus on women borrowers, micro-entrepreneurs and SMEs.
This is the fourth investment secured by Northern Arc in the last 12 months. It has attracted debt financing from global development financial institutions and impact investors including US International Development Finance Corporation, Asian Development Bank and Calvert Impact Capital.
In its statement, FMO said its investment will benefit microfinance borrowers in both urban and rural areas, including under-banked households and small businesses, as well as microlenders catering to women, all of whom have been hit hard by the COVID-19 crisis.
Similarly, high-quality NBFCs, which lend to micro-entrepreneurs and SMEs with emphasis on small-ticket sizes, will benefit from the facility, it added.
“Northern Arc acts as a catalyst to NBFCs without effective access to capital markets. The new transaction fits with FMO’s ambition to accelerate financial inclusion with a focus towards women-run businesses and SMEs,” said FMO chief investment officer Huib-Jan de Ruijter.
Northern Arc claims to have enabled debt financing of around Rs 95,000 crore ($12.7 billion) for its clients across the fields of microfinance, small business finance, affordable housing finance, vehicle finance, agriculture finance, consumer finance, fintech and mid-market corporates.
It is backed by private equity players such as Leapfrog, IIFL, Accion, Affirma Capital (erstwhile Standard Chartered Private Equity), Dvara Trust, Eight Roads and Sumitomo Mitsui Banking Corporation.
Northern Arc has a private debt fund management subsidiary, Northern Arc Investments, which manages nearly $300 million in investor commitments.
Founded in 1970, FMO has a committed portfolio of 9.7 billion euros, with investments in more than 85 countries supporting sustainable private sector growth in developing and emerging markets by investing in businesses, projects, and financial institutions.
In India, most recently, FMO made an investment of about $10 million in NeoGrowth Credit Pvt. Ltd, an early-stage fintech lender catering to small businesses.
FMO’s others India investments include MSME lender Vistaar Finance, WayCool Foods, renewable energy producer Avaada, payments solutions provider Innoviti, impact investor Aavishkaar Group, and social impact firm Dharma Life.
The Indian SME sector contributes 45% of the country’s industrial output and 40% of its total exports. There are about 30 million SMEs in India who employ more than 60 million people, according to the SME Chamber of India.