FMO, the Dutch development bank, has been an active growth stage investor in India. “To build a better world”, the Netherlands-based impact investor supports private sector enterprises in developing countries. The entrepreneurial development bank bets on projects that contribute towards sustainable economic and social development.

FMO has more than €9.7 billion of assets under management, with investments spread across 85 countries. It has invested 7% of its total portfolio or €703 million in 61 companies in India. The development bank intends to cap its total exposure in India to about 10%. Indian companies comprise more than 27% of the bank’s investments in Asia.

With an average investment size of €15 million, FMO’s India portfolio is overweight on the banking and financial services industry and the energy sector. So far, it has made 15 exits in India across companies such as Equitas, Ujjivan, and MAS Financial Services.

It has recently bet on Aavishkaar Group, Sahyadri Farmers Producer Company, and Srei Equipment Finance. Other portfolio companies include InCred, Intellecash, Zameen Organics, and MeraDoctor. FMO has also invested in 18 India-focussed private equity funds that include Kaizen PE, Baring India, and BanyanTree Growth Capital. Peter Van Mierlo, FMO’s CEO, in an interview with Fortune India, talks about the India story, what influences investment decisions, and how the country can achieve sustainable development goals without compromising on growth. Edited excerpts:

Aavishkaar Group is your most recent investment in India. What influences your investment decisions?

As FMO, we make investments when we think we can be ‘additional’. This means that when we invest, we not only invest our capital, but want to share the best practices that we see in our portfolio across the world. Aavishkaar has been a long-term partner for FMO. We invested in its first fund in 2006 and worked with them to support the microfinance sector in India, when it was just starting. Our missions are strongly aligned. Both our organisations believe in fostering the entrepreneurial spirit to reduce inequalities. Since 2006, Aavishkaar as a group has grown significantly, moving away from only microfinance to all sectors that positively impact vulnerable populations, such as financing small businesses, enabling technologies, agriculture, clean energy, waste and sanitation—precisely areas where FMO is active too. Now with a strong partner and one investment, we can work together across all these areas, and achieve some scale.

Since you typically focus on finance, energy, and agribusiness for investments, do you see attractive opportunities in India in these identified sectors in the current backdrop of liquidity concerns and slow growth momentum?

It is undeniable that there is a lot of potential in India. Not only the demographics and the size of the economy create that potential, we think it is the relentless enthusiasm and entrepreneurship in India that will continue to create opportunities. FMO will continue to build on its portfolio in India, but always remains selective. Investments should be strongly aligned with our strategy, willing to commit to efforts being the best in class in terms of corporate governance and environmental and social standards. We will seek to continue to work on the UN Social Development Goals and focus specifically on investments that create inclusivity not just for the bottom of the pyramid, but also inclusive in terms of gender, age, and geography.

What’s your total exposure to investments in India? How is India placed in relation to other emerging markets in Asia?

FMO has been present in India since the early days and has to date built up a diverse portfolio in financial institutions (37%), energy (32%), diverse sectors (20%), and agribusiness (11%). The gross portfolio amounts to $703 million [the total for the Asia region is $2.5 billion] in 61 clients or investees, hence making India the largest FMO country in terms of exposure. In all sectors, we are and will remain active.

What are the key challenges you face as a private sector bank investing in such a niche area?

Given its scale, we haven’t struggled to find good opportunities for investment in our niches in India. Nonetheless, there are specific challenges in each niche. For example, the recent volatility in the funding markets for financial institutions, storage for renewable energy, [and] the challenge to aggregate small-holder farmers just to name a few. We want to work with our partners in finding solutions for these challenges and we continue to encourage predictable policymaking which will be beneficial to all foreign investments.

Typically, companies fear switching to greener initiatives will raise costs and put pressure on profits. How can countries—India in particular—achieve sustainable development goals without compromising on growth?

We firmly believe that growth can be sustainable. The most important factor is to make sure growth is inclusive. Young entrepreneurs, women, people from all backgrounds and across all regions should have the same access to the same opportunities. The challenge is to make the same available in rural areas as in urban areas and to make sure there is a basic standard of living for all.

Follow us on Facebook, Twitter, YouTube & Instagram to never miss an update from Fortune India. To buy a copy, visit Amazon.