Northern Arc Capital

The INR hundred trillion investment opportunity backed by a quarter billion people

  • Large middle class in a fast growing economy.
  • The total demand for small business finance is estimated at USD 500 Billion with 80% of the demand originating from the informal sector.
  • Less than 10% of the population have access to formal sources of credit.
  • 247 million commercial enterprises don’t have access to formal finance.

The Indian Financial Inclusion Opportunity

India’s focus on financial inclusion is increasing; however, a large section of the population is still unbanked. Financial exclusion is widely prevalent in countries, such as India, due to poverty and low income, financial illiteracy, high transaction costs, and lack of infrastructure (primarily information technology). Consequently, a significant proportion of the population still lacks access to formal banking facilities.

1. Global Findex data for India excludes northeast states, remote islands and selected districts. 2. Data is for the population within the age group of 15+
2. Formal sources: A bank or another type of financial institution, or using a credit card.
Source: World Bank - The Global Findex Database 2017, CRISIL Research

Leading the way in unlocking opportunity

Northern Arc Capital, a leading player among India’s diversified NBFCs , set up primarily with the mission of catering to the diverse credit requirements to underserved households and businesses. Since 2009, when we entered the financial inclusion space, we have enabled financing for Originator Partners who have impacted over 54.21 million lives across India, of which more than 42 million were women. As of March 31, 2020, through our Originator Partners, we had credit exposure, directly or indirectly, spread across 657 districts in 28 states and seven union territories. We have cumulatively raised over Rs. 950.00 billion in funds for our clients, including funding from our own balance sheet and funding from a large number of Investor Partners, most of whom are repeat users of our platform. We have executed over 900 structured finance transactions, obtained over Rs. 28.00 billion in investor commitments across nine high performing funds and gathered over 22 million data points on customer repayment behaviour.

Using our customized credit-underwriting approach and tailored product suite that aids in the deployment of capital, we continue to build a diversified business with multiple offerings.

A deep understanding of economics of businesses and sectors at the grassroot level combined with robust credit and risk underwriting has enabled our Company to diversify across sectors, geographies, borrower segments and products. Our quantitative analysis is based on our data lake of 22 million granular loans and pools evaluated and invested in by us over a decade. Our technology system, Nimbus connects with many Originator Partners over Application Programming Interface (API) and processes data and workflows.

Over 400 investors have invested in products structured and executed by Northern Arc or in the Alternate Investment Funds managed by Northern Arc Investment Managers. These include banks, asset management companies, insurance companies, DFIs, fund-of-funds, AIFs, microfinance investment vehicles, FPIs, global investment vehicles, family offices, private wealth managers, foundations and HNIs. We offer due-diligence capability, rigorous approach to underwriting, on-going monitoring/surveillance, skin-in-game/co-participation by us, and the execution efficiency that our platform provides.

The growth in the number of Originator Partners and Investor Partners also attracts new borrowers and lenders which creates positive network effects and a diversified platform. Originator Partners on the platform engage in repeat transactions because of access to deep pools of liquidity, wider classes of investors and the ability of the platform to meet their unique requirements.

We have demonstrated a track record of more than a decade in offering customized products for various users of our debt platform. Our Company has pioneered the introduction of multiple innovative products such as the first securitization of microfinance loans, first pooled multi-originator securitization transactions (“MOSEC®”), persistent securitization (“PERSEC®”) involving securitization of vehicle loans with a replenishing structure. Embedded in our product designing capability is an understanding of the diverse credit requirements of our retail borrowers, Originator Partners, and mid-market companies, the sectors that they operate in, as also the risk and return expectations of our Investor Partners.

Our product structuring and designing capabilities have earned us awards for the ‘Best Arranger of the Year’ consecutively in 2018 and 2019 and ‘Most Innovative Deal’ in 2019 by the Indian Securitization Foundation. Our knowledge in product designing and customization is further strengthened by Nimbus, which makes use of technology and our Company’s large data lake to offer curated opportunities to both Originator Partners and Investor Partners.

Further, we selectively assume skin-in-the-game in some of these products to enhance their credit rating and enable our Originator Partners and other businesses to raise debt from investors. The skin-in-the-game could be in the form of guarantees for a stated amount, co-investment, and credit enhancement in the form of investment in subordinate tranches of an instrument or unfunded second-loss credit enhancement.

  • We only represent Originator Partners and mid-market companies that have been onboarded onto our platform. Consequently, these clients: (i) are subject to our due diligence processes; (ii) have been in existence for a minimum number of years; and (iii) are subject to monitoring if we have exposure to them.
  • We have identified relationship managers interacting with and servicing the needs of our Investor Partners to ensure personalised services and further deepen our relationships with them.
  • We selectively co-invest in transactions along with our Investor Partners.
  • Nimbus, provides several functionalities to our Investor Partners in a user-friendly manner. This includes the ability to view the funding requirements of and instruments offered by various clients in real-time, customization of structures such as underlying pools for securitization and direct assignment, reporting of underlying loan pool performance, updates on financial and operational performance of the issuers / borrowers, etc. In addition, Nimbus facilitates digital execution of a wide range of syndication and structuring transactions.
  • Using Nimbus and our risk management framework that incorporates qualitative and quantitative insights, we provide qualitative insights at various levels – at the level of the client, transaction and post-investment portfolio monitoring.
  • We only on-board clients from the focussed and preferred sectors that we operate our financing business from. This allows us to apply our sectoral expertise and analyse credit behaviour at the client level, and in the case of Originator Partners at the end-borrower level. Such aggregated analyses aid our investors’ credit decisions as also with post-investment portfolio monitoring.
  • The growing community of Investor Partners, Originator Partners and other businesses accessing our Company results in positive network effects as also a growing number of syndication and structuring transactions with multiple nuances in-built to cater to specific investment and credit requirements. This provides us with market intelligence and an understanding of market trends, which is of value to our investors.
  • We regularly organise and sponsor knowledge exchange events and conferences for our community of investor partners that typically also allows us an opportunity to showcase our extensive risk coverage, sector insights, diversified product suite, and tailor-made investment solutions.
Sign up and express interest to participate in transactions structured by Northern Arc.
Detailed conversations with the Northern Arc team to understand your investment mandate.
Diligence of a potential investee company, if required.
Northern Arc will show prospective transactions in a continuous basis.
Upon investment approval, Northern Arc will run the execution process from end-to-end.

A new class of debt opportunities

A very small proportion of Indian population is well served by the financial ecosystem with full access to a range of credit products. The promise of growth however lies in the urban mass, rural mass and rural emerging segments of India which are largely underbanked. The Global Findex report 2017 states that about

40 percent of Indians had accessed some form of credit during the year 2017. Of these, less than 10 percent had availed credit from formal sources of borrowing. All the remaining had availed credit semi-formally from family and friends and other sources. These underbanked segments form the core of Northern Arc core focus.

  • Microfinance
  • MSME Finance
  • Vehicle Finance (includes commercial vehicle and two-wheeler finance)
  • Consumer Finance
  • Affordable Housing Finance
  • Agricultural Supply Chain Finance

We work with specialized non-banks, differentiated banks and fin-tech players who cater to the unique needs of this segment. These non-bank players are expected to continue growing, driven by a deep understanding of customers, track record of product innovation, efficient delivery systems, and a differentiated value proposition.

By mining for opportunities, and applying innovative, data-backed solutions Northern Arc Capital’s social impact is substantial and growing.

By enabling partners operating in remote areas of India to increase their volumes and lower their cost of borrowing, to on-lend to low-income and financially excluded households and businesses, our activities are now benefitting over 54 million individuals. The company also helps its clients build better operating

and monitoring systems, as well as implement customer protection principles, thus improving the quality of products and services that end borrowers receive. Therefore, we just don’t deliver unique business opportunities, we also support them in becoming great investments.

INR 95,000 crores (USD ~ 12 billion)

Debt Capital raised since inception

Current exposures are spread across

657 districts

in 28 states and 7 union territories

228 partners

across 6 asset classes (Microfinance, MSME Finance, Vehicle Finance, Consumer Finance, Affordable Housing Finance, Agricultural Supply Chain Finance)

The Northern Arc advantage

  • Higher risk adjusted returns for investors.
  • Deep understanding of sectors, proprietary risk models built off a granular database of millions of end customers over a decade.
  • Co-investment by Northern Arc Capital to provide the necessary credit enhancement for desired rating, and maintain incentive alignment with investors.
  • Post deal risk management through frequent and calibrated client visits, data analysis and field monitoring.
  • Investment opportunities through our Fund platform - Northern Arc Investments.