Re-imagining traditional finance for India’s COVID recovery: regulatory enablers for mainstreaming innovative finance

The government of India over the years has taken various steps to promote philanthropy, Corporate Social Responsibility (CSR) and enabling availability of low cost capital to the marginalized and vulnerable populations. Promotion of low cost credit through numerous guarantee schemes for farmers and MSMEs has been a commonly used tool by Ministries to ensure availability of capital. Beyond these direct schemes, the government has also taken various measures to strengthen the CSR sector and encourage philanthropic giving. For instance the recently announced amendments to the CSR law in 2021, have emphasized that corporates should focus on the impact they create and allowed roll over of capital for a three year period which gives more flexibility to create long term sustainable impact. Further, other amendments to the income tax act have also helped charities take loans without the worry of being non-compliant with the legal requirement of charitable spending. While these are steps in the right direction, to experiment and address a number of challenges that are associated with the structuring of different models in this space, the report suggests the creation of a regulatory sandbox for blended finance transactions under the guidance of the government. This would allow for a conducive environment to innovate and understand blended finance structures in detail while preventing misuse of funds. Private sector stakeholders would get a chance to explore how they can contribute towards scaling blended finance solutions within a mutually agreeable regulatory framework. It would also instill confidence among regulators on how to put in place the guard-rails that would define the broad scope for a favorable blended finance regulatory landscape.