Shaping the Future of Municipal Bonds in India

When Omidyar Network proposed working with Bridgespan to Indian grantee Janaagraha, the nonprofit's CEO Srikanth Viswanathan was initially skeptical.

When Omidyar Network proposed working with Bridgespan to Indian grantee Janaagraha, the nonprofit's CEO Srikanth Viswanathan was initially skeptical. "To be honest, my immediate thought was to say, 'why can't we do this ourselves?'" says Viswanathan. "I went into the engagement with a certain degree of cautious skepticism."

A 20-year veteran in the field of urban governance, Janaagraha is highly regarded in India. But the challenge to improve life in India's cities is huge, and growing bigger every day. The McKinsey Global Institute reports India's urban population rose by 230 million between 1971 and 2008—and anticipates that it will rise by another 250 million by 2030, accounting for roughly 40 percent of the country's population.

Janaagraha CEO Srikanth ViswanathanToday, Janaagraha CEO Srikanth Viswanathan is called into meetings at the highest levels of government and with the United Nations Development Programme, World Bank, and others. At each of these meetings, he repeatedly draws on the catalytic action items that came out of the organization's study with Bridgespan.

What's more, the project Janaagraha had identified—catalyzing the use of municipal bonds in India in order to improve financial sustainability and accountability in cities—was complex. India lags far behind other countries in using municipal bonds to finance urban infrastructure development. While the United States and China have municipal bond markets of $3.8 trillion and $2.3 trillion, respectively, India has issued just $200 to $250 million in municipal bonds. Janaagraha wanted to find a way to realize this untapped potential.

Bharath Visweswariah, director of investments at Omidyar Network India, wanted some new minds on the problem. "What we were looking to Bridgespan for was a fresh external perspective, and the rigor of doing detailed analysis of the problem and framing it appropriately," he says.

Viswanathan was glad he worked with Bridgespan. "Bridgespan challenged us throughout the engagement," he says. "In the end, their method and discipline led us to very specific pathways to meet our objective." Meanwhile, Bridgespan Partner Pritha Venkatachalam found in Janaagraha a bold and engaged partner. "For us, working with Janaagraha was one of the greatest experiences in terms of collaborative working through all phases of the engagement. Our teams worked in close coordination in both the stakeholder engagement and solution development stages." The net result of that collaboration is shaping the future of municipal bonds in India.

Uncovering the barriers

Bridgespan Principal Kashyap Shah explains, "There was tons of literature on the barriers to municipal bonds in India, but no one had ever taken a deeper look into the root causes for each of those barriers." Bridgespan and Janaagraha took that deeper look, interviewing 50 stakeholders, including government officials, regulators, city agencies, investors, and experts. The process pushed both organizations beyond where they had been before.

For example, when Bridgespan sent Janaagraha a list of potential interviewees, Janaagraha added big names to the list, including the urban development minister of India. "These were very senior politicians and ministers," says Shah. "Honestly, at that point, we were skeptical about how many on the list we could secure interviews with." As it turned out, every one of those people agreed to an interview.

As they went through the interview process, Bridgespan worked harder than Janaagraha could have imagined. "The level of rigor as part of the stakeholder interviews, the level of preparation that the Bridgespan team brought to the table was stupendous," says Viswanathan. "We simply couldn't have done it ourselves."

From those interviews, Bridgespan was able to identify not only the key barriers to municipal bonds, but also four primary solutions. The top two solutions were:

  • Building the capacities of city agencies to issue municipal bonds, and
  • Creating a marketplace for information sharing and interaction between investors and city agencies.

"For me, more than a body of knowledge, what came out was perspective," says Viswanathan. "Bridgespan put the different pieces together that led us to answering the 'so what' question, which is the key for organizations like us."

A seat at the table

In less than a year, Janaagraha has made impressive strides in acting on the findings of the Bridgespan study. It has engaged with governments and multilaterals for wide-ranging municipal finance reforms. It has also laid the groundwork for an electronic portal on city finances that will connect city agencies and investors.

As government leaders plot the path forward, they are increasingly inviting Janaagraha to lend input. "We feel privileged to engage with governments in this conversation," says Viswanathan.

"For us, success would be having governments act on the action items from our study," he continues. "Government leaders have generally looked at our recommendations positively. So, we are beginning to make an impact, but it's not yet time to declare victory."

An opportunity for India

It will take years to see how the municipal bond market performs in India, but Janaagraha and Bridgespan are cautiously optimistic. "The seeds of further building out and rejuvenating that market have been sowed by Janaagraha and other players," says Venkatachalam.

Meanwhile, a valuable side effect of the municipal bond process is that it will compel cities to get their financial houses in order. "There's a measure of accountability that comes when public institutions raise capital from markets and are forced to produce more credible and timely financial information," says Viswanathan. Viswanathan is hugely positive toward the role for Bridgespan in India to map systems, diagnose root causes of development challenges, synthesize and curate solutions, and build skills and capabilities to implement them. "I think Bridgespan can and must play a leadership role in helping different actors in this sector connect the dots," he says. "This is a big missing link in the development sector in India."

Created: August 2020