‘Our focus is to reach underserved markets in tier II/tier III cities and low-income states’

Tell us about IFC’s macro view on healthcare in India?

Christopher M McCahan

Demand for quality private healthcare in India will continue to increase due to demographic and lifestyle factors, rising levels of income, increasing awareness of health issues, limited public sector budgets, and advancement of health technologies. It has been estimated that about $100 billion in investment will be required over the next decade to finance India’s shortfall of over a million beds. India also lags behind several other developed and emerging economies in availability of trained work force (about 50 per cent of the existing medical workforce in India is outside the formal health system) and insurance coverage for healthcare. While there are healthcare delivery systems in the tier I cities that compare favourably with the best institutions around the world this has not percolated to many of the tier II and III cities and rural India where a vast majority of India’s population resides. It is important for the government and the private sector to work together to develop a sustainable healthcare delivery system in tier II and III cities as well as rural India.

What specifically is attracting you to the healthcare sector?

IFC is a development institution and we view the strengthening of the healthcare system in India critical to its continued development, both in terms of alleviating poverty and creating shared prosperity. In India, approximately 60 per cent of healthcare is delivered by the private sector, so it is obviously an important part of the overall system. At the same time, many rural parts of India and smaller cities are under-penetrated and suffer from lack of quality, affordable healthcare services. This makes a strong case for further development of a sustainable and responsible private sector in health to help improve access to health-related goods and services to underserved geographies and populations.

Where does healthcare stand in your priorities?

Providing solutions to expanding quality and affordable healthcare is one of IFC’s top strategic priorities. IFC’s investment and advisory services businesses are working together with the World Bank to leverage the private sector to increase and improve access by low-income communities to affordable, quality health services, while reducing the burden of high out of pocket health care spending. Our focus is to reach under-served markets, including tier II/tier III cities and low-income states, with an emphasis on Uttar Pradesh.

What are the opportunities and challenges for health sector investments in India?

While significant capital has been going into the sector in recent years, there is still a sizable shortfall of access to affordable quality healthcare in the country. The private sector needs to continue to play an important role in extending such healthcare to more of the population. There will be increasing collaboration between public and private parties to develop joint solutions and to complement each other in tackling the difficult goal of increasing access to affordable quality healthcare. Both government and the private sector have important roles to play. This will mean more and more public-private partnerships, diversified payment mechanisms, and hybrid models that will, in turn, require investors who have a deep understanding of the drivers and dynamics of the industry. As delivery models become more complex, this will create both challenges and opportunities for healthcare providers, as well as investors.

Tell us about your past investments in this sector and your learnings.

IFC has been a leading investor in the healthcare sector in India and globally. Compared to other sectors, healthcare is a very long gestation business and requires patient capital. IFC can provide both long-term debt financing and also patient equity capital, and also help to catalyse other longer-term financing options for its clients.

Why is the investment in dialysis chain NephroPlus unique for IFC?

India remains a highly under-served market for dialysis services. An estimated one million people in India are required to undergo dialysis sessions thrice a week. However, almost nine out of ten people who need dialysis do not have access to it, and it is clinically and financially difficult for hospitals to provide this service. Specialised operators such as NephroPlus help people improve the length and quality of their lives. The company aims to reach over 8,000 patients and help create 1,000 skilled health services jobs in the next five years, almost a third of these will be for women.

IFC’s investment in the healthcare sector is India has focused mainly on supporting integrated hospital chains, affordable pharma projects, and diagnostics. NephroPlus is our first specialty care chain investment in the country. The company is focused on treating a single and prevalent disease — chronic kidney disease — which afflicts approximately 10 per cent of India’s population.

This is IFC’s first healthcare venture capital investment in South Asia, and also the first from IFC’s $250 million Early Stage Investment Program. The investment will be used by NephroPlus to expand its network of dialysis centers in India. NephroPlus already operates 26 dialysis centres across ten states in India. Besides IFC, existing investor, Bessemer Venture Partners, has invested an additional $3 million in NephroPlus.

How does IFC view the need for exits?

IFC is a long-term and patient investor. We generally have a longer investment horizon than, for example, private equity investors. IFC takes an exit only after our developmental and commercial roles are fulfilled in a particular project so that we can reinvest our capital to support other impactful projects that require funding.

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