NBFC Profectus Capital focused on MSMEs on Thursday said it has raised $25 million (approximately Rs 205 crore) through the issuance of non-convertible debentures (NCDs) to International Finance Corporation (IFC), a member of the World Bank Group. The deal marks IFC’s first investment to finance energy-efficient (EE) machinery for MSMEs in India.
Since the proceeds will be used to fund green assets, the NCDs have been labelled as green bonds. Profectus said it has developed a Green Bond Framework in line with the International Capital Market Association’s Green Bond Principles and IFC’s support will enable Profectus Capital to scale up EE equipment financing for MSMEs, which is key to India’s climate goals.
Moreover, IFC will provide targeted advisory support to help the company identify EE assets in its current portfolio, build capacity of its operations teams and management, and create a growth plan, contributing towards reduced greenhouse gas emissions.
Speaking on the investment, K V Srinivasan, Founder, CEO & Whole-time Director of Profectus Capital said the “partnership is of immense significance and value to us given that this is the first investment by IFC in India to finance purchase of energy efficient equipment by MSMEs.”
“It will go a long way in aiding MSME capital investment in India. Since the commencement of our operations in 2018, we have progressed well in all dimensions including business growth, asset quality, and profitability despite many macro headwinds. With IFC’s investment in our green bonds, we look forward to further consolidate our position in the MSME market.”
While there are around 65 million MSMEs in India with around a 30 per cent share to the country’s GDP and about 40 per cent to exports, the credit gap for the sector is estimated to be Rs 25.8 trillion (approximately $311 billion).
Over 50 per cent of these MSMEs are manufacturing units incurring energy costs as high as between 35 and 40 per cent of their operating expenses. The projected energy consumption by MSMEs in the country is expected to more than double by 2030 to 72 metric tons of carbon dioxide (tCO2) equivalent from 30 metric tCO2 in 2017, the company said in a statement.
“This provides a significant opportunity for energy savings through the replacement of old machines with both new EE machines and retrofits,” it said.
“IFC’s investment in this asset class will help develop the market for EE finance for small businesses. Supporting the country’s climate targets, we are confident that the funding will pave the way for similar engagements, boosting competitiveness, creating jobs, and improving access to MSME finance. Green bonds are still relatively new borrowing instruments for financial institutions in India,” said Wendy Werner, IFC Country Head for India.