39061 - Fullerton Masala

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Summary of Investment Information

Project Number

39061

Company Name

SMFG INDIA CREDIT COMPANY LIMITED

Date SPI Disclosed

Apr 20, 2017

Country

India

Region

South Asia

Projected Board Date

May 31, 2017

Environmental Category

FI-2 - Limited

Status

Completed

Last Updated Date

Jan 13, 2023

Department

Regional Industry - FIG Asia & Pac

Industry

Financial Markets

Previous Events

Approved : Jun 15, 2017
Signed : Jun 23, 2017
Invested : Sep 29, 2017

Sector

Microfinance and Small Business - Non Commercial Banking

Project Description

The proposed project involves the subscription by IFC to Masala Bond (Rupee Denominated)/ Non-Convertible Debentures issued by Fullerton India Credit Company Ltd. (“FICCL”, the “Company”)/ Fullerton India Home Finance Company Limited (“FIHFC”) for on-lending to micro, small and medium enterprise (“MSME”), sectors and business permitted under applicable laws/regulations.

Established in 2007, FICCL is a leading Non-Banking Finance Company registered with Reserve Bank of India. The Company has a strong focus on lending to rural and urban micro and small enterprises and also caters to mid-sized SMEs. FICCL also offers loans for affordable housing to salaried and self-employed individuals through it is fully owned subsidiary FIHFC.

As of Dec 31, 2016, FICCL has total assets under management of around US$ 1.88 billion and has reached out to more than 1.6 million customers through a widespread network of 528 branches spread across 22 states & 3 union territories, reaching out to 600 towns and 48,000 villages in the country.

Associated Advisory Engagement

N/A

Sponsor / Cost / Location

Product Line	IFC Investment (million USD)
Risk Management
Guarantee
Loan	89.57
Equity

IFC's loan to the financial institution described in this SII is targeted for on-lending to the following sector(s):

Product Type	Use of Proceeds
Straight Senior Loan	Loans to Microfinance Borrowers
Straight Senior Loan	Loans to Microfinance Borrowers

IFC's Definitions of Targeted Sectors can be found here.

Development Impact

1. Increased access to finance to MSMEs in Low Income States: FICCL provides financing to the underserved MSME segment which lacks financial access even today. The Low Income States (LIS) in particular has historically been under financed despite having housed a significant percentage of MSMEs. IFC debt is expected to expand FICCL's reach in LIS and increase MSME portfolio. 2. Building further capacity in affordable housing finance: FIHFC provides affordable housing finance to the low-mid income borrowers with an average ticket size of INR 1.7mn (~US$ 25000). It plans to cater primarily to the under banked geographies by leveraging the network of its parent FICCL. IFC investment is expected to help it scale its affordable housing portfolio. 3. Job Creation: MSMEs in India employ close to 40% of the workforce. Access to credit for these entities helps them achieve scale while enhancing sector competitiveness and job creation

1. Long Term Partner: The project would demonstrate IFC's continued support to an NBFC focused towards serving an underserved market and targeting customers at the base of the pyramid in the low to middle income states. 2. Demonstration Effect: IFCs participation in the masala bond of FICCL will also aid in the overall development of alternate funding sources since Indian NBFC's have traditionally relied on bank funding and other forms of wholesale funding. 3. Diversification of Liability Profile: Bank funding constitutes 41% of the borrowings with the NCDs comprising 38%, Sub-Debt 6%, Commercial papers comprising 10% and Masala Bond 5%. FICCL aims to maintain effective diversification in the sources and tenor of funding, and to minimize liquidity risks deriving from excessive concentration by tenor, counterparty or instrument type. IFCs debt will help the Company to diversify its funding profile.

E&S Category Rationale / Risks and Mitigation

The lending profile of Fullerton India Credit Limited ('FICCL' or Fullerton) is a mix of urban lending (41%), rural lending (16%), mortgages (21%), SMEs and emerging corporate lending (15%) and MSMEs through vehicle finance (6%). The lending products for SMEs include working capital loans as well as capital expenditure loans in the long term segment. The industry sectors of exposure primarily present medium E&S risks, although some could be of relatively high risk sectors e.g., metals, machinery, transport, construction and apparel. Going forward the focus on SME lending will increase and will constitute a bigger part of the overall portfolio. The lending portfolio of the housing finance subsidiary Fullerton India Home Finance Company Ltd. (“FIHFC”) is in the affordable housing finance space with an average ticket size of INR 1.7mn (~USD 25000). Its current portfolio split is around 40% towards salaried and 60% towards self-employed professionals. The end use of the IFC proceeds is to support financing to MSMEs in the low income states and to support to the low income housing. Hence, the overall E&S risk of the proposed IFC investment in FICCL and FIHFC is considered as medium and the project is categorized as FI-2. The applicable Performance requirements will be i) the IFC- FI Exclusion List; and ii) The relevant host country E&S laws and regulations. The application of IFC Performance Standards is not an immediate requirement, as the current combination of the size, tenor, type of financial instruments offered and supported sectors is of medium-low risk. However, the FICCL will apply Performance Standards in case of project and long-term corporate finance.

Main E&S risk and impacts of the project emanates from the SME and emerging corporate finance. These includes potential impacts like occupational health & safety, labor and working conditions, fire and life safety, waste and pollution management and possibly land and biodiversity impacts depending on the nature and location of the company. This is an existing client with an existing E&S risk management system (SEMS) and E&S officer responsible for implementation. The current SEMS is adequate for the proposed IFC investment. The client will provide relevant training to the staff.

Task Title & Description	Actual Due Date	Status	Comments	Completion Date
Staff Training		Completed

Contacts

For Inquiries About the Project, Contact

Fullerton India Credit Company Ltd.
Mr. Arvind Sampath
Head- Treasury
91 22 6749 1234
arvind.sampath@fullertonindia.com
Floor 5&6, B Wing, Supreme Business Park, Powai, Mumbai -76
http://www.fullertonindia.com

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