41271 - Alliance Loan

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Summary of Investment Information

Project Number

41271

Company Name

ALLIANCE FINANCE COMPANY PLC

Date SPI Disclosed

May 4, 2018

Country

Sri Lanka

Region

South Asia

Projected Board Date

Jun 5, 2018

Environmental Category

FI-2 - Limited

Status

Completed

Last Updated Date

Sep 22, 2023

Department

Regional Industry - FIG Asia & Pac

Industry

Financial Markets

Previous Events

Approved : Jun 26, 2018
Signed : Jun 27, 2018
Invested : Jun 29, 2018

Sector

Finance Companies

Additional Project Attributes

Blended Finance

Project Description

The proposed project is a secured, 5-year, local currency, senior loan of up to US$10mn equivalent, to Alliance Finance Company PLC (Alliance), a mid-sized licensed finance company (LFC) in Sri Lanka (the Project). The funding will support the expansion of Alliance’s MSME portfolio related to the agriculture sector, with an emphasis on financing climate-smart agriculture solutions and women-owned enterprises. Alliance is mainly engaged in vehicle financing, and 15% of its March 31, 2018 portfolio was exposed to the agriculture and forestry sector.

The Project will be supported by the IFC-Canada Climate Blended Finance Program and the WEOF facilities, with a focus on promoting respectively, Climate Smart Agri (CSA) practices and Women owned SME financing in agribusiness space. Out of the up to US$10 million financing for this project, up to US$2 million will be carved out for CSA and funded by the IFC-Canada Climate Blended Finance Program. The WEOF will provide pricing incentives based on targets reached by the project.

The agriculture sector employs 26% of Sri Lanka’s work force, represents 24% of exports and accounted for a third of poverty reduction over the past 15 years. However, its contribution to GDP fell from 20.5% to 6.9% in the same period. Further, inclement weather conditions have led to a 1% reduction in GDP growth in recent years. Moreover, lack of investments in technology, value additions, efficient and climate smart practices are obstacles in realising its true potential. This has made the sector less competitive in the global market, severing it from global agri-value chains.

The proposed project is part of IFC’s ‘Sri Lanka Agriculture Finance Program’, which aims to provide a holistic solution to bridge an estimated agriculture financing gap of US$ 2bn. The Program would consist of the following components:

1. Capacity development of Participating Financial Institutions (PFIs): on agri value chain financing and development of related products

2. Awareness creation: modern, efficient practices to enhance quality and productivity among agri-value chain players

3. Risk mitigation: introduction of agri insurance products and climate smart agricultural practices

4. Improve enabling environment: working on policy measures to improve the enabling environment in line with Government’s Vision 2025

5. Funding: provide funding to chosen PFIs to lend to agri value chain players

To achieve this IFC will work closely with the World Bank, government stake holders and private sector partners.

Associated Advisory Engagement

The IFC Advisory Services Engagement offered to PFIs such as Alliance, as part of the Sri Lanka Agri Finance Program will focus on:

1) Working with PFIs to build capacity for agri value chain financing and to disseminate knowledge on climate smart agricultural practices to improve yields and income levels of farmers/small agri businesses.

2) Based on primary research carried out by IFC, working with PFIs, agri processors, industry associations and potentially fintech companies.

Sponsor / Cost / Location

Product Line	IFC Investment (million USD)
Risk Management	0.10
Guarantee
Loan	8.0
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 Woman-Owned SMEs
Straight Senior Loan	Agri Finance (Corp./Farmers/Climate)
Straight Senior Loan	Loans to Woman-Owned SMEs
Straight Senior Loan	Agri Finance (Corp./Farmers/Climate)
Client Risk Management	Loans to Woman-Owned SMEs
Client Risk Management	Agri Finance (Corp./Farmers/Climate)

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

Development Impact

1. Develop agri-finance: The proposed project will involve advisory support to PFIs to develop capacity to lend to agri-finance projects, a segment currently underserved by the banks and largely neglected. It will also demonstrate to other Sri Lankan financial institutions that commercial lending to agriculture related MSMEs is both a profitable and sustainable business proposition. 2. Longer-tenor funding: There is a clear role for IFC in providing a large amount of longer-tenor, fixed interest rate local currency funding, not readily available from the market. 3. E&S standard setting: This Facility presents an opportunity to set industry standards and further strengthen E&S risk management for agri finance. IFC is uniquely placed to help the PFIs to develop E&S agri lending capacity, which will support sustainable economic development in line with the priorities of the Government of Sri Lanka.

E&S Category Rationale / Risks and Mitigation

The company is involved in on lending to the Small and Medium Enterprises, Microfinance sector (together 'MSMEs'), and retail segment. IFC loan will be used to further increase the on lending to the MSMEs within the agriculture sector, with a focus on women-owned agri enterprises. Overall, the project present potentially limited adverse environmental or social risks or impacts. Hence, the project is categorized as FI-2. The applicable performance requirements will be i) the IFC- FI Exclusion List; and ii) The host country E&S laws and regulations.

Main E&S risk and impacts of the project emanates from the loans to MSME clients. Generally, these E&S risks and impacts will be related to workplace and labour practices, occupational health and safety, compliance to applicable laws related to licensing, permitting etc. Alliance Finance has an E&S team, and has drafted an E&S risk management system (ESMS) recently. The ESMS will be upgraded in consultation with IFC. Alliance Finance's HR policies are in line with the IFC Performance Standard 2.

Contacts

For Inquiries About the Project, Contact

Alliance Finance Company PLC
Sanjaya Seneviratne
Assistant General Manager – Treasury

sanjayas@alliancefinance.lk

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Fax: 202-974-4384

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This Summary of Investment Information (SII) is prepared by IFC to disclose a factual summary of the main elements of the potential investment. It also includes findings and recommendations related to environmental and social considerations regarding this potential investment. The purpose of the SII is to enhance the transparency of IFC’s activities. For any project documentation or data included or attached herein, whether prepared by the project sponsor or otherwise, authorization has been given for public release by the project sponsor. IFC considers that this SII is of adequate quality for release to the public, but has not necessarily independently verified all of the project information therein. It is distributed in advance of IFC Board of Directors’ consideration and may be periodically updated thereafter. Board dates are estimates only and this document should not be construed as presuming the outcome of the Board Directors’ decision. The following SII is disclosed in accordance with IFC's Access to Information Policy (AIP) that went into effect on January 1, 2012.

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