Why mid-market enterprises explore the AIF route for capital raising
mid-market enterprises constitute the foundational pillar of the Indian economy. As the Indian economy marches ahead to feature among the top three global economies, mid-market enterprises will have significant capital requirements to capitalize on the opportunities presented.
Banks, mutual funds, insurance companies & bond markets are the various avenues of debt funding available to enterprises.
There is a huge credit gap in the mid-market corporates, beyond those served by the corporate bond market and banks. Among the 30,000-40,000 odd mid-market companies in India, less than 200 have access to the debt market via mutual funds, insurance companies, pension funds, etc.
Of the total Indian corporate bond market size of ~US$600 billion, only 4-5% of the market is occupied by mid-market corporates and the rest by large corporates.
The credit gap is created on the supply side due to the limited availability of credit from traditional lenders like banks. Banks tend to have rigid, outdated underlying templates, say, a checklist with requirements that may not be relevant to a new-age profitable business.
As a result, banks & NBFCs have chosen to focus on retail lending over the past decade.
Further, since 2020, the AUM of Credit Risk Funds (CRFs) has been declining due to increasingly restrictive regulatory mandates & redemption by retail investors. This coupled with preference for higher rated issuers by CRFs led to lesser availability of funds for lower rated investment grade papers.
However, the demand for debt continues to be high amongst mid-market enterprises.
Our research indicates that over 90% of these enterprises are profitable. While working capital finance is readily available, medium to long term debt finance for
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