30421 - Cargills Agriculture and Commercial Bank

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Summary of Investment Information

Project Number

30421

Company Name

CARGILLS BANK LIMITED

Date SPI Disclosed

Oct 19, 2012

Country

Sri Lanka

Region

South Asia

Projected Board Date

Nov 26, 2012

Environmental Category

FI-1 - Significant

Status

Completed

Last Updated Date

Nov 30, 2016

Department

Regional Industry - FIG Asia & Pac

Industry

Financial Markets

Previous Events

Approved : Jan 14, 2013
Signed : Mar 8, 2013
Invested : Apr 2, 2013

Sector

Commercial Banking - General

Project Description

The proposed project involves an equity investment of LKR 495Mn (approx. US$3.84Mn) to acquire up to 10% shares in a Greenfield Licensed Commercial Bank, Cargills Agriculture & Commercial Bank (‘CACB’ or ‘The Bank’) and a senior loan of up to US$7 Mn to support the Bank’s debt funding requirements. In September 2011, the Central Bank of Sri Lanka granted CACB provisional approval to set up operations subject to fulfillment of routine terms and conditions.

Sponsor / Cost / Location

Product Line	IFC Investment (million USD)
Risk Management
Guarantee
Loan	7.0
Equity	3.88

Development Impact

Access to Finance - The Bank will increase access to finance to MSMEs especially in the unbanked agrifinance sector. The project is expected to contribute to IFC''s IDG on Access to Finance to SME/Micro clients.

Expansion in North and East - The Bank is expected to have significant operation in the underserved N-E region of the country which is also part of the farming, fisheries, dairy production area of Sri Lanka.

Build investor confidence - IFC''s participation can help build foreign investor confidence and help channel future FDI in the country which is critical for the growth of the economy and specifically for the reconstruction and development of the war affected N E regions.

A niche Banking model - The Bank will be built on a unique business model with a bias towards serving the underserved MSMEs and underpenetrated regions of the country. Its strategy of serving the agriculture and linked communities will take its operations outside of the well banked western provinces. The Bank will use mobile banking technologies and take advantage of the extensive Cargills supermarket footprint and its links to the agriculture community to implement its differentiated banking strategy. This project will add a new dimension to the banking sector in Sri Lanka.

Employment in the rural regions - The Bank plans to hire graduates as loan officers from the local communities to work in its branches creating job opportunities for young people in the rural regions of the country.

IFC''s association to this project will add further credibility to the proposal amongst investors, rating agency and regulators.

Development of best in class SME banking business model - As a new player in SME Banking the Bank will need support and advice in building the best practice operational processes and standards in order to built a profitable franchise given the difficulty to assess the risks inherent to SME financing as well as the higher transaction costs. IFC with its global expertise in this area, strong on the ground advisory capabilities and its successful track record in investing in greenfield banks will be critical to the Bank''s success.

Strategic Partner - As an equity partner, IFC wll instill good governance and help the Bank in strenghtening capacity at the board level. IFC will be able to work with like minded investors in fulfilling this objective.

International Strategic Partner - As requested by the sponsors, IFC will help to introduce a strategic partner with a strong track record in SME/Rural/Agriculture Banking to be an investor/technical partner in the project.

Financial Additionality- IFC plans to provide long term debt financing to the Bank along with its equity investment which would be beneficial for the Bank to manage its funding during the initial years of operations.

E&S Category Rationale / Risks and Mitigation

CACB is a greenfield bank and hence does not have any lending exposure currently. The lending business of the bank is expected to comprise full range of commercial banking including corporate and project finance, SME and microfinance. Overall, this may present potentially undesirable environmental or social risks and impacts that will be diverse in nature, widespread in geography and some of which may have irreversible E&S impacts. Hence, the E&S risk of the proposed investment is high and the project is categorised as FI-1. The applicable Performance requirements will be i) the IFC- FI Exclusion List; ii) The host country E&S laws and regulations; and iii) the IFC Performance Standards.

Main E&S risk and impacts of the project emanates from the corporate, project and SME finance. These includes impacts like occupational health & safety concerns, labour and working conditions, fire and life safety, construction related E&S risks, waste and pollution management and possibly land and biodiversity impacts depending on the nature and location of the investments to be made by the bank. Additionally, there is a likelihood of social risks and impacts in case of agriculture related projects in the country. At present the bank does not have an E&S risk management system in place. The bank was found to be in gross compliance with IFC''s requirements of PS-2 on Labour and Working Conditions.

Contacts

For Inquiries About the Project, Contact

Mr. Harris Premaratne
CEO/Managing Director,
Cargills Agriculture and Commercial Bank Limited
No. 696, Galle Road, Colombo 3.
Tel: +94 (0) 777 762234
Fax: +94 (0) 11 2 055575
mailto:harris.p@cargillsceylon.com

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Task Description	Anticipated completion Date
Establish ESMS including guidelines for its implementation.	within a month from Commitment
Appoint ESMS officer/team for implementation of SEMS	on or prior to commitment
Review ESMS implementation	six months from commitment

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