The investment will be through issuing non-convertible debentures, a form of long-term debt lending.
“The project is intended to support RHFL to increasing its reach and penetration in the affordable housing finance segments, especially in tier II and tier III cities,” IFC said in a filing.
RHFL is a publicly listed company, and promoted by Repco Bank, a state cooperative society that has a 37.14 per cent stake. The balance is held by foreign and domestic investors.
In 2014, private equity firm Carlyle sold its entire holding in RHCL for $78 million, making a near nine-fold return on its six-year-old investment.
RHFL operates 106 branches and 36 satellite centres — where partial banking services are available — in 12 Indian states.
The funding is in the form of long term debt of seven years. This will contribute to diversifying the funding profile of the company, which is currently comprised of loans from the National Housing Bank and other public-sector banks.
Affordable housing is a fast-growing real estate sector in India, given the massive shortage of it. According to the housing plan of the government of India, about 100 million homes need to be built in India, and about 95 per cent of that will be for buyers in low-income groups.
This is a huge opportunity for investors, and organizations like Essel Group and Japanese realty firm Daiwa have invested in affordable housing projects in India. Luxury projects, which had attracted investment previously for their higher margins, are now struggling to sell apartments in cities like Mumbai and Gurgaon.
RHFL is focused on providing access to housing finance to low income borrowers, specifically those employed in the informal sector such as self-employed micro-entrepreneurs and unorganized sector salaried workers.
Buyers of low-cost housing find it difficult to get loans from housing finance corporations and banks because of perceived higher risk profile of such borrowers and difficulty in credit assessment.
Giving impetus to more construction projects will encourage more employment. The construction industry is one of the largest employers of labour in urban India and affordable housing is the most labour intensive construction, providing high potential for employment opportunity to the urban poor.
IFC has been involved in financing affordable housing in India before, including extending a Rs 450 crore credit line to Clearwater-backed Altico Capital.