41285 - NDB Agri Loan

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Summary of Investment Information

Project Number

41285

Company Name

NATIONAL DEVELOPMENT BANK PLC

Date SPI Disclosed

May 16, 2018

Country

Sri Lanka

Region

South Asia

Projected Board Date

Jun 15, 2018

Environmental Category

FI-2 - Limited

Status

Completed

Last Updated Date

Oct 19, 2024

Department

Regional Industry - FIG Asia & Pac

Industry

Financial Markets

Previous Events

Approved : Jun 15, 2018
Signed : Jun 27, 2018
Invested : Jul 3, 2018

Sector

Commercial Banking - General

Additional Project Attributes

Blended Finance

Project Description

The proposed project is a 5-year, local currency, senior loan of up to US$50 million equivalent, to National Development Bank PLC (‘NDB’), a mid-sized licensed commercial bank (‘LCB’) in Sri Lanka (‘the Project’). As at December 31, 2017, SME and Retail segments accounted for 40% of the Bank’s portfolio, followed by Corporates (33%) and Project Finance (22%). The Project will support the expansion of NDB’s MSME portfolio related to the agriculture sector, with an emphasis on financing climate-smart agriculture solutions and women-owned enterprises. The Bank’s current exposure to agriculture represents 10% of its portfolio.

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 the agribusiness space. Out of the up to US$ 50 million financing for this project, up to US$10 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$ 2 billion. 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 NDB, 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	0.26
Guarantee
Loan	44.75
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 proposed project is to provide a senior loan of up to US$ 50 million to National Development Bank (NDB) PLC, an existing IFC’s client in Sri Lanka to support NDB’s expansion of its Agribusiness portfolio. The project presents medium E&S risks and impacts which are readily manageable. The proceeds from this loan are expected to be used predominantly to support small and medium scale agribusiness activities. There is limited possibility for larger projects such as tea and cinnamon plantations that could be potentially exposed to significant environmental and social risks and impacts on community health and safety, occupational health and safety, environment, indigenous peoples, biodiversity or cultural heritage as well as involved in involuntary resettlement. These sensitive activities are either to be avoided or managed in line with IFC’s Performance Standards. The project is categorized as Category FI-2. The E&S requirements will include IFC Exclusion List, applicable national E&S laws and regulations and IFC Performance Standards when applicable.

NDB is involved in agri-financing which includes mainly agri processing and food processing but also limited exposures to plantations of tea, coconut, rubber, spices, animal husbandry (Poultry, Cattle, Fish) and dairy. The main E&S risks and impacts of the project are related to occupational health and safety, labor and working conditions, and pollution/waste management aspects at the client’s agri borrower’s premises. Since NDB is an existing IFC client it has developed an E&S risk management system and assigned E&S roles and responsibilities for the E&S risk management system implementation. Currently the E&S risk management system incorporates screening against IFC exclusion list and includes due diligence procedures for assessment of compliance with relevant national E&S laws and regulations. For agri- financing, the E&S due diligence procedure will have to be enhanced. The client is in compliance with IFC Performance Standard 2 on labor and working conditions.

Contacts

For Inquiries About the Project, Contact

National Development Bank PLC
Lalith Fernando
Group CFO

lalith.t.fernando@ndbbank.com

http://www.ndbbank.com/

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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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Task Title & Description	Anticipated Completion Date
Staff Training	09/30/2018
Update ESMS	09/30/2018

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