India: IFC Invests $200m in Mahindra Finance to Create a Pool to Fund MSMEs

Dec 2019
India, December, 02 2019 - World Bank Group’s subsidiary International Finance Corp (IFC), on Monday, invested $200 million in Mahindra & Mahindra Financial Services Ltd (Mahindra Finance), as part of its plan to create a dedicated pool of financing for micro, small and medium enterprises (MSMEs) in low-income states.

The development-focused investor has earmarked at least $100 million for women-owned MSMEs, Mahindra Finance said in a stock exchange filing. While IFC has invested $75 million from its own account and is mobilizing another $125 million as parallel loans, the $100 million for women entrepreneurs will be supported through blended finance from the IFC-Goldman Sachs’ Women Entrepreneurs Opportunity Facility.

“To expand financial services for MSMEs, IFC has been systematically supporting India’s NBFC sector,” said Hemalata Mahalingam, manager, financial institutions group, South Asia at IFC.

“Although the financing needs of rural and women-owned enterprises are not radically different, the level of financial exclusion is higher. The dedicated gender line and focus on unreached segments will contribute to addressing these gaps and demonstrate the commercial viability of investing in women and low-income groups,” she added.

Mahindra Finance has further committed $225 million to this pool.

“Mahindra Finance has been powering inclusive growth in rural communities for over 25 years. Our experience in these markets reveals that to achieve true financial inclusion, access to formal credit for financially under-served segments is a necessity. Availability of credit for income generation, especially to women and low-income households, will further accelerate financial inclusion,” said Ramesh Iyer, vice chairman and managing director at Mahindra Finance.

This is not the first time IFC has invested in Mahindra Finance. In July, 2018 IFC had invested $100 million in the company to boost growth, by extending loans to individuals, including farmers, to buy tractors, vehicles and other equipment, along with financing small and medium enterprises.

Mahindra Finance is a non-banking financial company, focused on the rural and semi-urban sector, which provides vehicles tractor and agricultural equipment financing through its physical network of over 1,300 branches as well as digitally, and through rural distribution initiatives like ‘loan melas’ across the country. So far, it has lent to more than 6.4 million customers in over 3.7 lakh villages in the country and has $10 billion assets under management.

It plans to use the fresh funding to further enhance credit in rural and semi-urban geographies, with customized solutions for women borrowers in low-income states, according to its press statement.

The news comes amid IFC’s push towards supporting women leading businesses in the low-income and rural areas. As of last year, IFC provided 3.86 lakh SME loans worth $11.2 billion to women-owned enterprises across the world. In India itself, Lending to microfinance borrowers, mostly women in rural areas, has increased by 900 percent over the last six years—from $2 billion in 2012 to $20 billion 2018.

However, a lot needs to be done in the country as the total credit gap for MSMEs in India is estimated to be $397.5 billion, around 15 percent of its gross domestic product, according to an IFC study conducted in 2018. The financing gap for MSMEs is more acute in low-income states, while targeted lending to women-owned MSMEs is even less prevalent, the report said.

In May, IFC led a $222 million debt investment round in Chennai-based Cholamandalam Investment and Finance Company Ltd, which mainly provides commercial vehicle finance and loans against property. Nearly half of its clients are in low-income states and 80% of them are first-time buyers or drivers-turned-owners. In the same month, gold-loan non-banking financial company Manappuram Finance Ltd. said that IFC planned to invest $35 million in the company to help low-income households and small enterprises avail loans against their gold assets. In July, PNB Housing Finance Ltd raised $100 million from IFC to expand its affordable housing loan portfolio.

Source : DealStreetAsia

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