Chicago-based asset manager Nuveen targets India's pivotal microfinance industry, with a board role and capital to help scale one of the country's largest micro-loans institutions.

Long before Bangladeshi economist Muhammad Yunus won the Nobel Peace Prize putting microfinance on the map, it was seen as the best way to help grow small businesses in developing countries.

As impact investing has taken hold, institutional investors are increasingly helping microfinance institutions scale up in providing loans, insurance cover and savings capacity to businesses traditionally shut out of capital markets. Now roughly 200 million people globally are helped by microfinance institutions.

This week, Nuveen announced “a significant minority stake” in Annapurna Finance Private (AMPL), one of India’s largest microfinance institutions, with a loan portfolio of around $500 million serving mostly female entrepreneurs across rural India with working capital loans.

As a strategic shareholder and board member, Nuveen, which manages around $1.2 trillion of investments globally, said its goal is to steer the company toward growth acquisitions and broaden its outreach for climate initiatives.

It is the second investment, the global investment manager has made through its Global Impact Strategy, following a stake in Michigan-based Advanced Battery Concepts in October 2020. The strategy is focused on two areas – inclusive growth and resource efficiency – and targets a 40-60 per cent allocation to each theme through direct private equity investments.

“AMPL has differentiated itself in the industry by focusing on product diversification, digital innovation and geographic expansion, ensuring that rural entrepreneurs in India have the financial tools they need to run and grow their businesses,” Radhika Shroff, managing director of private impact investing at Nuveen, said.

The company, launched a decade ago in the Western state of Odisha, has continued to grow its portfolio during the COVID-19 pandemic. It has been “opening new branches, launching specialized outreach and education, and supporting clients’ resiliency through the crisis," Shroff said.

Over the years, microfinance has been given a boost from crowdsourced lenders such as San Francisco nonprofit Kiva, which allows people to lend money to low-income entrepreneurs in $25 increments using its online platform.

Nuveen reckons that around 640 million people in India remain financially excluded but expects 54 million people to join the ranks of new consumers by 2025, creating $600 billion of spending demand and $120 billion in debt demand.

India's fits and starts at market reform took a leap in February when Narendra Modi signaled plans to privatize two of the country's 12 state-owned banks. The policy shift marks the loosening of decades of state-run financing that has been plagued by loan write-offs and now considered unfit to capitalize India's next phase of growth. Even prior to the pandemic, India registered one of the world’s highest bad-loan ratios.

“AMPL is well-positioned to benefit from [debt demand] and Nuveen’s investment will help the company execute its future growth plans,” Shroff said.

The Chicago-based asset manager began impact investing back in the 1980s and today manages around $6 billion in impact funds across public and private markets.