International Finance Corporation, the private investment arm of World Bank plans to invest up to $40 million in Indian micro finance institution Ujjivan Financial Services in form of a senior debt investment.
In September last year, Ujjivan was one of the 10 recipients of the Small Finance Bank License (SFB). And to meet the noms laid down by the Reserve Bank of India, foreign investors in the firm including IFC, Elevar and India Financial Inclusion Fund, Dutch development finance institution FMO, among others had pared their stake through a public listing on the BSE.
“IFC’s proposed investment will help the company expand the outreach of access to low income borrowers who have little or no access to formal sources of financing and strengthening its balance sheet through availability of long tenor debt during its transformation phase,” IFC said in a disclosure.
The investor further said that the support in terms of long-tenor debt would benefit the Bengaluru-based company by supporting growth and helping it manage liability during early years of transition to SFB.
“IFC’s long term support to microfinance sector will help strengthen investor confidence in this sector,” it added.
Ujjivan operates through 469 branches in 24 Indian states and union territories with a borrower base of more than 2.5 million borrowers and a loan portfolio of approximately $620 million as of September 2015.
Through its small banking operations, the company will foray into MSME lending with new loan products. The MSME portfolio will present potentially limited adverse environmental or social risks or impacts that will be few in number, generally site-specific, largely reversible, and readily addressed through mitigation measures, IFC said.
In February, Ujjivan raised fresh capital to the tune of Rs.292 crore in a so-called pre-IPO round. The company expects to start its SFB in the first quarter of 2017, the company said.
In a similar deal, IFC recently agreed to invest up to $50 million in non-banking finance company Au Financiers (India) Ltd through non-convertible debentures. In 2012, IFC along with Warburg Pincus had invested $50 million in Au Financiers, wherein the private equity firm had invested about $45 million and the remaining $5 million came from IFC.