Northern Arc Capital’s Managing Director and Chief Executive Officer Dr. Kshama Fernandes

Story of Northern Arc Capital – Promising Credit Opportunities

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India has a vast underbanked population, which lack tools to build emergency funds and pay debts. The underbanked segment includes low-income households and small businesses which went completely dry on credit over the last few months due to the pandemic. Then there are early-stage businesses, and small and medium enterprises (SMEs) that have strong business models but are facing liquidity crunch as they mostly face challenges with accessing debts.

Northern Arc Capital (Formerly known as IFMR Capital) is a Non-Banking Finance Company that provides access to debt for under-banked individuals and businesses in India.

Through a combination of their capital, products and partnerships, Northern Arc Capital has created a platform that connects millions of borrowers to mainstream debt investors. They follow a focused approach of underwriting the credits.

Backed by Dvara Trust, Eight Roads Ventures, Leapfrog Investments and Standard Chartered PE, the company lends, guarantees, co-invests in their structured-debt products, and they engage in placing debt for their clients. Some of its partners include Lendingkart, Capital Float, and Udaan for small business loans, and ZestMoney, Early Salary, and Krazybee for consumer and personal loans.

The journey of Northern Arc is very exciting to note. This Chennai-based startup had its humble beginnings in 2008 in a small 10-seater office at the IFMR Business School in Chennai. During March 2019, it had its first microfinance securitization transaction placed with a bank investor. In January 2010, it launched its first multi-originator securitization – MOSECTM. By August 2012, it launched the first of its kind ADB partial guarantee program. By 2014, the company launched its first pool bond issuance, first external equity round, and had its first ECB raised for microfinance.

The startup had its second external equity round in 2016. In 2017, the company’s first Pooled Loan Issuance Product, and the first Single Issuer Partially Credit Enhanced (SPiCETM) Bond were launched. The company rebranded as “Northern Arc Capital” in 2018 to reflect the evolution of the business. It was during this year that the first ever persistent securitisation transaction was carried out by the company in India (under the 2012 RBI guidelines). 2019 and 2020 saw rapid strides in the company’s growth. In 2019, the company carried out its first ever covered bond transaction in India. It also had its third external equity round and had a strategic investment by SMBC. By December 2019, the company crossed 1 lakh retail loans through co-origination.

Notable achievements during 2020 include the first trade receivables securitisation for India, receiving commitments for the first offshore fund and for debt capital funding. The company also commenced direct lending to Micro Finance borrowers through DO platform.

Their unique advantage lies in sector-focused underwriting, combined with a capital markets approach that creates relevant investment products and building long-term relationships with their client partners. Here are some significant growth data of the startup over the years:

  • 10+ years of investing
  • 33 million lives impacted
  • $ 8 billion+ finance enabled
  • 400+ structured rated transactions
  • 125+ investors
  • 125+ client partners
  • Pan-India debt portfolio diversified across 29 Indian states and 540 districts

Northern Arc Capital has recently raised $10 million in debt from US-based Calvert Impact Capital via External Commercial Borrowing (ECB) – this is Calvert Impact Capital’s largest debt investment in India so far. The company intends to deploy the funds towards on-lending to financial institutions as well as lending directly to retail customers and to mid-market corporates.

“The partnership with Calvert Impact Capital is long-term and multi-dimensional, helping both organizations achieve common goals across impact and growth. These include aiding small businesses and promoting gender equity, a cause that is strongly endorsed by both organizations. The facility’s longer duration will expand Northern Arc’s ability to fund MSMEs and households.”

– Bama Balakrishnan, Chief Operating Officer

The company is looking to add growth in the coming months with the support of its in-house built platform ‘Nimbus’ for ecosystem partners to connect and tap opportunities, and transform the economy ground up.

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