Investors’ perspectives − Reflections on Bihar from a UK impact investor

Audrey Selian

The June issue of Alliance was totally illuminating, even for a European-based impact investor whose focus is solely on India. Despite my familiarity with existing ‘impact investment’ opportunities in the country, I found the profiling of the state of Bihar extremely exciting and compelling.

Deval Sanghavi’s excellent reflection on ‘Helping Indians to help India’ was a strong validation for the importance of peer learning between and among (venture) philanthropists, and on some level confirms the idea that ‘investor readiness’ is not just a goal for entrepreneurs alone. Rather, it concerns donors as well. As impact investors, we should be aiming to achieve higher levels of readiness to execute on our stated commitments to give more and better, particularly in areas that do not represent ‘low-hanging fruit’ like Bihar.

The focus on Bihar as a hotbed of innovation in the rural electrification space was extremely well articulated. There is a ring of truth about the idea that ‘if one can make it work in Bihar, one can make it work anywhere’, although it begs the big question of whether and how this part of the country can become more accessible and understandable to those who seek to deploy capital there.

Social investment in India in general is currently a minefield: the instruments are not readily understandable, rules and regulation shift frequently, and the rules surrounding exit clauses are opaque to say the least. Moreover, the less infrastructure and the higher the perceived levels of corruption in an area, the greater the transaction costs for external investors, to the point where social enterprise investments from outside the country become almost pro bono efforts. In some cases, more will be spent on understanding the deal than on the deal itself. Grasping the complexities of distribution channels for most energy or FMCG (fast-moving consumer goods) products in a Bihari context is a challenge that is likely to be overcome only by understanding what constitutes ‘best practice’ in a large number of areas: end-user finance, rural marketing and after-sales services, to name a few.

We also have to appreciate how price- and quality-conscious the BoP (bottom of the pyramid) customer is; we are unlikely to find a more discerning customer anywhere else in the world! There are also other dynamic elements that need to be understood, like the volatile role of government subsidies, and local political activity that could affect the prices of a key commodity or crop. One obvious way to deal with these considerations is to work closely with the most active external investors in the area – in Bihar this means players like Shell Foundation, Bamboo Finance, Acumen Fund, LGT VP, LCEF/ERM – and with the Indian leaders in this sector like Aavishkaar, whose understanding of the reality is obviously much deeper than that of any external organization.

With nearly a third of the world’s energy-poor living in the country, there is no shortage of opportunity for impact investors to engage and make an impact in India. The challenge, however, is not just to identify those who are introducing new technology but to understand the service that is being provided around this technology – for whose benefit, whether it suits your investment mandate (there are those, for example, who avoid biodiesel or feedstock type solutions that involve any kind of crop), and how to conceptualize the notion of risk. Finally, as we get closer to understanding these things and to having wide-scale social impact in an area of India that is absolutely ripe for change, we need to remain humble.

India in general – and Bihar more specifically – is a great example of a place where capital is really just the tiniest piece of the solution to any great problem, and these are early days in the BoP space. While we work carefully to ensure that the types of capital we are providing do not distort the local economy (for instance, grants that may be used to subsidize the price of an end-product or service), we also have to be realistic enough to recognize that these tranches of soft capital are but a first step towards building the kinds of sustainable enterprise that will be capable of absorbing mainstream capital. Hopefully these later injections of finance will come from within India’s own pool of great wealth, whether from individual philanthropists or from its active private equity houses.

Audrey Selian is Director of the Artha Initiative of Rianta Capital. Email

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