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Encourage Capital closes solar finance fund on $40m

Friday, June 28, 2019
Opalesque Industry Update - Encourage Capital, LLC, an impact investment asset manager and advisory firm, today announced the first closing of a new private equity fund, Encourage Solar Finance, L.P. at USD $40 million. The fund will invest in specialized financial institutions in India that can develop and scale commercial rooftop solar finance solutions for micro, small and medium-sized enterprises.

Prominent mission-aligned investors have participated in the first closing, including KfW, Capricorn Investment Group, the John D. and Catherine T. MacArthur Foundation, the Jeremy and Hannelore Grantham Environment Trust and the Sant Foundation.

Recognizing the vast potential of its solar resources and the increasing energy needs of a rapidly growing economy, the Indian government has set a target to deploy 100 GW of solar by 2022 (including 40 GW of rooftop solar). However, as of March 2019, only 3.5 GW of rooftop solar has been installed, with the MSME market largely unaddressed. According to an independent study commissioned by Encourage Capital, the rooftop solar market for MSMEs in India has a 15 GW potential, resulting in a $9 billion lending opportunity for financial institutions. This study included in-depth, in-person surveys of MSME customers across India with support from the Growald Family Fund and the ClimateWorks Foundation.

"With increasing energy demand, high electricity prices and decreasing costs of solar, MSMEs can find rooftop solar to be an attractive, low-carbon solution for their electricity needs, but financing is still a key barrier," said Adam Wolfensohn, Managing Partner and Chairman at Encourage Capital. "Our fund aims to address these barriers by partnering with specialized financial institutions and providing them with growth capital and the operational assistance they need to develop and deploy innovative and commercial financing solutions to scale rooftop solar for this market."

MSMEs are important drivers of economic growth, accounting for 45% of India's industrial output and nearly 30% of GDP. However, MSMEs face a credit gap of $230 billion in India, which limits their growth. By providing much needed financial solutions to address important investments in clean energy, Encourage Capital believes that there is a unique opportunity to achieve compelling economic returns, given the rapid growth and superior asset quality of MSME lenders as compared with larger lenders, and to simultaneously reduce the carbon footprint of India's industrialization.

"For investors seeking a market-rate return while creating deep and systemic impact, rooftop solar finance for Indian MSMEs represents a large, underserved and attractive market opportunity," said Ameya Bijoor, Partner at Encourage Capital. "This fund is an important example of Encourage Capital's mission to identify, structure and finance commercial solutions to some of the world's most critical social and environmental problems."

"KfW has a long history of promoting sustainable development in India, particularly in financial inclusion and renewable energy," said Dr. Adam Drosdzol of KfW. "Encourage Capital's unique approach combines these two themes to make clean energy solutions accessible for MSMEs in India, thereby furthering sustainable development in the country."

"MacArthur's investment in Encourage Solar Finance represents a core element of our support for India's climate leadership, and, in particular, the government of India's bold nationally determined contribution to the Paris Accord in 2015," said Jorgen Thomsen, Director of Climate Solutions at the MacArthur Foundation. "Encourage Solar Finance is targeting a critical financing gap around rooftop solar in India's MSME sector because they believe, as do we, that these transactions are both economically viable and present enormous promise. We're excited to partner with them in this important endeavor."

Encourage Capital brings a successful track record of making commercial private equity investments in India. Through its prior fund, Wolfensohn Capital Partners, L.P., the Encourage Capital team has successfully invested in and exited several high-quality financial institutions in India, including DCB Bank, Ujjivan Financial Services and Repco Home Finance.

Encourage Capital seeks to complete its final closing in Q4 of 2019 with a target of $75 million and a hard cap of $100 million. Goodwin Procter LLP served as lead fund counsel for Encourage Solar Finance, LP.

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