Initiative for Responsible Investment at Harvard University recently came out with a report Impact Investing: A Framework for Policy Design and Analysis. This report talks about the role of the government to make impact investment more impactful and how to nurture the still immature sector of impact investment..I did not get to read the entire report but I had a chance to go through the Case study done in India’s priority sector lending.
Here is the summary of the case study:
“For more than four decades, the Reserve Bank of India (RBI) has required all public
and private banks to direct a fixed percentage of lending to “priority sectors,”
which it defines as underserved or priority areas for economic growth.
Today, state-owned and private banks must make 40 percent of all loans to the
priority sector, whereas foreign banks have a minimum requirement of 32 percent.
The priority sector includes agriculture, small enterprise, retail trade, education,
and housing finance. The RBI decreed in 1998 that one-fifth of priority sector
lending must go to “weaker section” small business and agricultural borrowers.
A proposed scheme of tradable Priority Sector Lending Certificates (PSLCs) has
recently emerged as a potential strategy to improve efficiency and inclusion
of the poor in the priority sector. If this scheme is implemented, banks will
purchase low-risk PSLCs in fulfillment of their lending requirements, largely from
microfinance institutions. PSLCs have the potential to increase the role of MFIs
is providing more efficient and lower cost services to India’s poor urban and
rural borrowers.”
· Commercial banks and other financial institutions in Nepal also have to comply with the similar kind of policy –“deprived sector lending policy”. Under this policy provision, commercial banks are liable to lend up to 3 percent of their total loan outstanding to deprived sector. Socially deprived women, endogenous, lower caste, blind & hearing impaired, disabled, craftsman, artisan, small & marginal farmer and landless people are categorized as deprived sector.
· PSLCs model/scheme should be replicated in Nepal but with a slight value addition … Option to buy certificates should not be limited just to the financial institution. Nepali Diasporas (Nepal received $3.5 billion of remittance every year), International donors and foreign and domestic impact investors should be also allowed to buy and trade these certificates.
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