Mainstreaming the alternative
While India has witnessed unprecedented economic growth in the recent past, its development has been lopsided and inequitable with the country continuing to trail behind on essential social and environmental parameters of development18/12/2009 | By By Rana Kapoor, Founder/Managing Director & CEO, YES BAN
However, to affect a truly sustainable development with effective resolution of social and environmental issues – be it health, education or climate change – requires sustained efforts lasting over decades if not generations with intervention models implemented on a large scale using efficient, scalable mechanisms to enhance impact.
While philanthropy, developmental organisations and the State have all played, and continue to play, an important role in addressing developmental problems, a crucial missing piece, which embodies all attributes – sustainability, efficiency and scale – vital to making a sizeable impact, has been the private sector.
Indeed, YES BANK’s Responsible Banking strategy, encapsulating our approach to sustainable development, has been devised to weave our efforts as a private enterprise into the broader development framework in a way that leverages inherent strengths of individual stakeholders to facilitate an equitable, inclusive development.
Banking responsibly
Since its inception in 2004, YES BANK has incorporated Sustainability in its DNA not because we want to be a Don Quixote tilting at imaginary windmills, but because we believe that this focus gives us a truly winning competitive edge while helping us to augment sustainable development for an ‘Emerging India’. We thus approach sustainability neither from a special interest perspective, nor from a principle of charity but as a clear recognition of the Business Case for Sustainability – financial solutions work, are profitable and open up new markets hitherto untapped by mainstream financial institutions.
The bank is holistic in its approach – recognising that sustainability itself has to be sustainable. This implies that as a financial institution and emerging corporation, we need to be involved (and are involved) in the sustainable space along its entire value chain – in green and renewable technologies, in Bottom of the Pyramid (BOP) markets, in our dealings with our diverse client base, investors, regulators and employees. This also implies that we work to move Sustainable Financing from the esoteric realms followed by a few forward∞thinking institutions, to mainstream financial institutions.
Responsible Banking therefore works at two levels i.e. ‘Responsible Banking in Thought’ – a think tank, incubating new ideas and identifying new sustainability markets which then guide the Bank’s overall approach – and ‘Responsible Banking in Action’ – dedicated business units that focus on sustainability sectors – clean energy, energy efficiency, sustainable livelihoods, agricultural and rural enterprises. These units continually work in close association with other parts of the Bank creating an effective network of sustainable business solutions to address developmental concerns:
Sustainable investment bank
A specialised division filling the financial advisory gap in environmental and social impact markets, providing the entire gamut of investment banking products and services including Capital Raising, M&A, Restructuring & JV Advisory and Technology Transfer/International Collaboration in the following sectors:
• Clean Technologies & Clean Enterprises – Renewable Energy, Energy Efficiency, Clean Transportation, Water & Environment and Distributed Energy
• Social Infrastructure – Livelihood Creation, Education, Healthcare, Food & Agriculture, Housing & Utilities
Sectoral and Product Framework∞SIB is currently running mandates for joint ventures and acquisition advisory and raising private equity funds for enterprises operating in wind energy mapping, solar technology, green building material, hydro power equipment manufacture, technology provision for financial inclusion, financial services to affordable private schools and microfinance among others. In the last year, SIB facilitated funding of INR 50 crore for Asmitha Microfin Ltd., one of top five MFIs in India. It is also the Exclusive India Partner to:
• Global Environment Fund (GEF), $1.5bn fund dedicated to sustainable sector
• Clean Technology Australasia to provide Investment Banking services to Australian clean technology companies for Indian markets
• NES to provide Investment Banking services to Israeli sustainability companies
• Finnish Clean Technology Cluster to provide Investment Banking services to Finnish companies
Private equity
Focused on making equity investments and currently sponsoring a USD 200 million South Asia Clean Energy Fund (SACEF) in collaboration with GEF, SACEF is a dedicated fund targeting investments in clean energy, clean technology and energy efficiency across India, Sri Lanka, Nepal and Bangladesh. In the future, we plan to introduce funds with a focus on Social Ventures – organisations which offer commercially sustainable solutions and serve poor communities either as consumers or producers with staged investments ranging from $100,000 to $3m.
Microfinance
Focused on Financial Inclusion, our microfinance initiatives have reached over 1,400,000 BOP clients in 1000+ villages directly and through our partners:
Microfinance Institutions Group (MIG) – is a relationship management group that works with commercially sustainable microfinance institutions (MFIs) offering banking services and advocacy on policy and regulatory issues. MIG institutes specific transactions to position microfinance as a new asset class appealing to a broad base of investors and lenders, thus expanding its potential sources of capital. It aims to catalyse the growth of Indian microfinance and reduce the costs of funds to enable scale up, thereby ensuring provision of affordable, fairly priced and customised financial solutions to the BOP. In FY09, in collaboration with the Bank’s Structured Finance and Treasury teams, we executed a series of innovative structured transactions cumulatively amounting to more than Rs.190 crores spread across three leading MFIs covering 400,000 + micro borrowers. Indicative transactions include:
• Rated Senior Tranche Pass Through Certificates (PTCs) backed by loans originated by Equitas Microfinance India Private Limited rated AA (SO) by CRISIL, credit enhanced by IFMR Capital – Rs.12.5 crore
• Rated Loan Assignment originated by Share Microfin Limited rated A2+(SO) by ICRA – Rs.43 crore
• Rated Loan Assignment originated by SKS Microfinance Private Limited with highest possible rating of P1+ (SO) by CRISIL – Rs.86 crore
• Rated Non Convertible Debentures and Commercial Paper issued by SKS Microfinance Private Limited – Rs.50 crore
These transactions enabled issuers to significantly increase transparency, reduce transaction costs and lower cost of funds thus increasing access to efficient and commercial capital at the BOP. These products involved significant structuring and credit enhancement mechanisms to achieve an Investment Grade rating, a feat of particular significance given the prevalent difficult credit environment.
YES SAMPANN – the Bank’s direct intervention pilot programme, in technical collaboration with ACCION International, stands out for its focus on urban poverty using individual lending methodology in a market that has largely been about group lending to rural women. In setting up the first institutionally sponsored direct intervention model for microfinance, the bank has created a benchmark institution that becomes a reference point for what our MIG practice strives for in terms of helping partners transform.
In addition to simple Group Borrowing Products, YES SAMPANN offers more complex credit products like individual loans without group guarantees, working capital for micro entrepreneurs and salary-linked loans for the unorganised sector, e.g. house-maids and drivers. We have recently instituted event-linked and non–credit linked micro savings programmes, which no other MFI offers in India and plan to launch microinsurance products. YES SAMPANN has reached 4000+ micro entrepreneurs in urban slums since July 2007.
Agribusiness, rural and social banking
This develops and executes innovative financial models leveraging outreach of various stakeholders in the agri value chain to overcome the ‘last mile problems’ in agribusiness and rural sectors. Implementing our lending program, the team has grown to a portfolio size of $400m, reaching over 1,000,000 individual farmers with small/marginal land holdings (less than five acres) and rural artisans with limited or no access to formal financial institutions. In fact, our structured lending to these groups has been recognised as a path breaking innovation by Euromoney’s Trade Finance as Deal of the Year (one of 12 winners from around the world).
Responsible corporate citizenship
This team offers sustainability consulting services to corporates and not-for-profits with an aim to create scalable, financially sustainable solutions promoting inclusive growth. RCC advisory covers the following:
• Social auditing
• CSR strategy development
• Socio-Environmental Engagement
• Business processes waste reduction
• Human resources and employee support analysis
• Carbon emissions analysis
• Networking among corporates and NGOs
• Social business and entrepreneurship development
• Syndication of funds
• Social enterprise planning and scalability
Successful RCC assignments identify and promote emerging, scalable models of social entrepreneurship with clients including Buldana Urban Credit Cooperative Society, Jain Irrigation Systems Ltd., Shriram Transport Finance Corporation Ltd. and Malnutrition Matters, Canada.
