Even as banking and non-banking finance ecosystem has spread rapidly in India, individual entrepreneurs from India's vast hinterlands, with little or no credit history, find it difficult to raise funds and even if they do, interest rates tend to be high, around 20 per cent or more.
To bridge the gap, World Bank, UN Women and Small Industries Development Bank of India (SIDBI) have come together to launch new social impact bonds.
The new Women's Livelihood Bonds will enable individual women entrepreneurs in sectors such as agriculture, food processing, services and manufacturing to borrow around Rs 1 lakh to Rs 1.50 lakh at an annual interest rate of around 13 per cent or less.
The bonds will be raised by SIDBI with the support of World Bank and UN Women. SIDBI will act as the financial intermediary and channel funds raised to women entrepreneurs through participating financial intermediaries.
The Women's Livelihood Bonds will be unsecured, unlisted bonds with a fixed coupon rate of 3 per cent per annum and a five-year tenure.
“In the market, there are investors who are looking for maximum impact returns. There are group of top wealth managers and corporates that are actually ready to put money in to support livelihoods of women. The coupon rate is low enough that money can now be given to individual women entrepreneurs as opposed to self help groups. Putting money into that missing middle, where small women entrepreneurs are not getting enough money at the right rate, this will begin to enter that market," said Junaid Ahmad, country director for the World Bank in India.
The target is to raise around Rs 300 crore in the first tranche over the next 3 months, which will be channelled into micro finance industry for the small and medium women entrepreneurs through SIDBI, added Ahmad.
Additionally, a corpus fund catalysed with support from the UK Department for International Development and future CSR (corporate social responsibility) and other grant money will be created to support the implementation of the bonds, capacity building of women entrepreneurs including links to markets and appropriate technologies as well for credit default risk mitigation.
Some of the top wealth management firms have reached out to high net worth individuals (HNI) and impact investors to raise the funds. Companies like Tata Communications, Tata Chemicals, Trent and Voltas have also expressed interest in investing, World Bank and SIDBI officials said.
