41293 - Central Fin Agri

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Summary of Investment Information

Project Number

41293

Company Name

CENTRAL FINANCE COMPANY PLC

Date SPI Disclosed

May 11, 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 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$20mn equivalent to Central Finance Company PLC (CF), a licensed finance company (LFC) in Sri Lanka (the Project). The funding will support the expansion of CF’s MSME portfolio in the agriculture sector, with an emphasis on financing climate-smart agriculture solutions and women-owned enterprises.

The Project will be supported by the IFC-Canada Climate Blended Finance Program and the WEOF facilities, with a focus on promoting Climate Smart Agri (CSA) practices and Women owned SME financing in agribusiness space. Out of the up to $20 million financing for this project, upto $4 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 Sri Lankan agriculture sector employs 26% of its 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. Furthermore, 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:

Capacity development of Participating Financial Institutions (PFIs): on agri value chain financing and development of related products
Awareness creation: modern, efficient practices to enhance quality and productivity among agri-value chain players
Risk mitigation: Introduce agri insurance products and climate smart agricultural practices.
Improve Enabling Environment: Work on policy measures to improve the enabling environment in line with government’s Vision 2025
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.

Sponsor / Cost / Location

Product Line	IFC Investment (million USD)
Risk Management	0.15
Guarantee
Loan	12.0
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 VSEs
Straight Senior Loan	Loans to SME Borrowers
Straight Senior Loan	Loans to VSEs
Straight Senior Loan	Loans to SME Borrowers
Client Risk Management	Loans to VSEs
Client Risk Management	Loans to SME Borrowers

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 agri MSMEs is both a profitable and a 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 a loan to Central Finance Company PLC (CF) to support it in growing its lending to micro, small and medium enterprises (MSME) in Sri Lanka and has been categorized as FI-2 in accordance with IFC Sustainability Policy. CF is a Non-Banking Financial Institution (NBFI) providing financing services predominantly in support of vehicle financing in Sri Lanka. This loan will support CF to expand its offering to MSME customers in the agriculture sector. The E&S risk associated with the lending is considered as medium/medium-low and can generally be readily addressed through standard mitigation measures. The Project will be required to comply with IFC Exclusion List and host country E&S laws and regulations.

CF has not yet developed an Environmental and Social Management System (ESMS). It will be required to establish one allowing for screening against IFC's Exclusion List and application of the relevant Sri Lankan E&S laws and regulations. CF will also need to designate staff member(s) responsible for E&S risk management and provide necessary training to relevant staff for implementation of the ESMS. CF has developed and implemented HR policies and procedures that are generally aligned with the objectives of Performance Standard 2 on Labor and Working Conditions. CF will be required to upgrade its existing grievance mechanism for employees to ensure compliance with Performance Standard 2 requirements.

Contacts

For Inquiries About the Project, Contact

Central Finance Company PLC
Mr. Arjuna Gunaratne
Director, Group Coordination
+94112300555
arjuna@cf.lk
270, Vauxhall Street, Colombo 2, Sri Lanka
www.centralfinance.lk

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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
Nominate ESMS Officers	08/31/2018
Establish ESMS	09/28/2018
Develop staff E&S training plan	09/28/2018
Upgrade existing grievance mechanism for employees	09/28/2018

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