In India the formal financial services sector has made minuscule inroads into the potential market. Smaller enterprises constitute 99% of all companies and contribute to 30% of GDP, but they lack formal access to finance, with 80% currently self-financed.
A company that is challenging this status quo is LeapFrog investment Northern Arc Capital (formerly IFMR Capital) a non-banking finance corporation. Northern Arc is a dynamic link between debt capital markets and high-quality debt originators who are the last mile link to individuals and businesses that traditionally face challenges in access to finance.
Northern Arc provides efficient and reliable access to debt for such lenders across India, in turn enabling a steady supply of finance for financially excluded families and businesses.
Since inception in 2008, the company has partnered with more than 140 institutions to impact the lives of over 33 million customers across 29 states and 540 districts across of India. The company has enabled debt financing of USD 7 billion across sectors like microfinance, small business loans, affordable housing finance, vehicle finance and agri-finance. It has structured and executed over 400 transactions which have been placed with over 120 investors.
Northern Arc uses a variety of structures to provide financing to its clients, including direct loans, securitization, guarantees, arrangement and placement of commercial paper, bonds, debentures, and other capital markets products. It invests in the debt of its originators ensuring skin-in-the-game. Northern Arc developed and launched the world’s first Multi-Originator Securitization for micro-loans and listed India’s first securitised debt instruments on the BSE. It recently introduced a fund advisory and management platform and India’s first rated (AA) financial inclusion debt fund as a Category I AIF, backed by leading insurance companies, a bank and private wealth investors.
Northern Arc also provides rating enhancement advisory services and helps originators to build better operations, oversight and customer protection. The result? End-borrowers receive quality products and services, providing the very foundation of trust.
This trust works its way back into the capital markets. Northern Arc’s robust risk management systems at the grass roots ensure strong risk-adjusted returns for investors, and an A+ credit rating for the entity.
Northern Arc Capital CEO Kshama Fernandes speaking about the reach and impact of Northern Arc, says “Northern Arc stands for access, change, freedom, growth and prosperity for all. We are the frontier that spans across the world of finance – from those who have little or no access to finance to those who have it in abundance.”