Structured debt products remain scarce, especially for MSMEs, despite their significant potential. Having navigated these challenges firsthand in the businesses we’ve built—and through our own experience making both debt and equity investments—it’s clear that MSMEs often face an unfair perception of risk.

In reality, structured debt and cash flow-linked products are far more reliable compared to equity investments in MSMEs. They provide a clear and predictable pathway to realizing returns while aligning closely with the operational realities of these businesses. This approach not only supports sustainable growth but also offers greater reliability for both businesses and investors.

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The Growth Landscape of Indian Businesses

India's business ecosystem is thriving, with a significant number of companies achieving annual growth rates of 20–25%. Within this universe, while some businesses are well-positioned to raise equity and create outsized returns for investors, a larger cohort of companies faces unique challenges.

Equity financing is often ideal for businesses with ambitious scaling plans, disruptive innovation, or substantial capital requirements to capture market share. However, many businesses in India—particularly small and medium enterprises (SMEs)—are seeking financial solutions that align better with their immediate growth milestones. This is where traditional financing options like banks and financial institutions often fall short.

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Limitations of Traditional Financing for SMEs

For SMEs, the ability to secure sufficient financing from banks or conventional institutions is often constrained by factors such as:
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• Collateral Requirements: Many SMEs lack the assets needed to secure large loans.
• Rigid Lending Criteria: Banks may hesitate to fund businesses in emerging industries or those with unconventional growth models.
• Insufficient Credit Limits: The amount of financing offered by these institutions is frequently inadequate to meet the scale of their
  growth aspirations.

This creates a gap in the market, where many high-potential businesses are left without the resources they need to expand effectively.

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The China+1 Strategy and Its Impact on Indian Manufacturing

A significant global trend shaping this landscape is the China+1 strategy. As global supply chains diversify, we’ve seen a steady shift of manufacturing activity to India. This has opened up enormous opportunities for Indian SMEs:
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• Companies that previously had little exposure to international markets are now receiving consistent international orders.
• Domestic consumption is ramping up, further fueling growth opportunities across industries.

These dynamics underscore the untapped potential of Indian SMEs in becoming pivotal players in global and domestic markets. However, for these businesses to seize the moment, they need flexible, scalable financing solutions tailored to their growth journey.

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Our Belief in the Power of Debt

Given these factors, we believe debt products are uniquely positioned to unlock the potential of Indian SMEs. By choosing debt over equity, we can:
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• Provide growth capital without diluting the ownership of entrepreneurs who’ve worked tirelessly to build their businesses.
• Offer flexible financing aligned with their cash flows and investment cycles.
• Enable businesses to meet immediate milestones, such as expanding capacity and geography, investing in new target segments, or
  fulfilling large international orders.

Debt financing also aligns with our fund's goals of delivering predictable returns while contributing to the growth of India’s SME ecosystem.