International Finance Corporation (IFC), a member of the World Bank Group, has invested $10 million as equity in e-commerce firm Power2SME that helps small and medium companies buy raw materials at bulk prices and get working capital without collateral.
“In addition to the investment, IFC will also advise Power2SME to help it expand beyond its current 14 states, improve its ability to provide working capital to Small and Medium Enterprises (SMEs) by adding more banks as partners and increase the number of users on its platforms by up to 10 times in five years,” a joint statement from IFC and Power2SME said on Tuesday.
Power2SME is backed by venture capital firms such as Kalaari Capital, Accel Partners and Inventus Capital. Nandan Nilekani joined it as a strategic advisor through his investment in late 2015.
“IFC’s extensive experience in supporting the SME sector through financing and deep networks with banks and financial institutions will help us in our vision to make SMEs bankable,” said R. Narayan, Founder and CEO, Power2SME.
“Indian SMEs are critical to making India a manufacturing hub and we must foster the sector if we are to meet the national imperative of inclusive growth. We aim to continue strengthening the SME ecosystem by addressing key challenges that are roadblocks to SME growth,” he said.
Micro, small and medium enterprises (MSMEs) form a large part of the Indian economy, accounting for 45 per cent of the country’s industrial output and 40 per cent of its exports. There are 48.8 million MSMEs in India, which employ 111 million people. There is critical shortage of long-term funding for the sector.
Some estimates put the gap at $320 billion against a total of demand of $500 billion. India has the largest base of SMEs in the world after China. However, Indian SMEs contribute only 8-10 per cent to the GDP, compared to 60 per cent in China.
“Our investment in Power2SME will spur greater venture capital interest in the SME sector in the country and support India’s vision to become a global manufacturing hub,” Ruchira Shukla, Venture Capital and Private Equity Lead, IFC South Asia, said.
“By working with SME-focused companies and partner financial institutions, we aim to improve access to finance for over one million SMEs in the next five years,” she said.
IFC makes direct equity investments in start-ups and as a limited partner in venture capital funds. Its sectors of focus include consumer internet, edutech, healthtech, cleantech, and business-to-business e-commerce.
It is one of the early institutional investors in India’s SME finance space and an early supporter of companies that develop digital platforms to transform traditional sectors. It has invested close to $1 billion in financial intermediaries in India to enable credit financing for SMEs.
Since 1956, IFC has invested in over 400 companies in India, providing $17 billion in financing to the private sector.