46295 - Vivriti

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Summary of Investment Information

Project Number

46295

Company Name

VIVRITI FIXED INCOME FUND - SERIES 3 IFSC LLP

Date SPI Disclosed

Oct 24, 2022

Country

India

Region

South Asia

Projected Board Date

Dec 16, 2022

Environmental Category

FI-2 - Limited

Status

Active

Last Updated Date

Sep 23, 2023

Department

Regional Industry - FIG Asia & Pac

Industry

Funds

Previous Events

Approved : Mar 1, 2023
Signed : May 2, 2023
Invested : Sep 21, 2023

Sector

Other Non-Private Equity Fund

Project Description

The proposed project entails an IFC investment of a senior debt in Vivriti India Retail Assets Fund (“The Fund”). The Fund will have a target corpus of US$150 million and will be managed by Vivriti Asset Management Private Limited (VAM) – an asset management company and a subsidiary of Vivriti Capital Private Limited (VCPL) and will be established as an Alternate Investment Fund (AIF) in the GIFT City, India’s International Finance Services Center (IFSC). The Fund will predominantly invest in senior tranches of securitized debt securities backed by granular assets (asset backed securitization or ABS) – majority of which are micro and small enterprises (MSEs) and income generating assets. The targeted asset-originators will be small to mid-tiered non-banking finance companies (NBFCs) in India with a domestic credit rating of BBB- to A+ that extend financing primarily for micro, small and medium enterprises (MSMEs) (including women etc.) – the Project.

Associated Advisory Engagement

Sponsor / Cost / Location

Product Line	IFC Investment (million USD)
Risk Management
Guarantee
Loan	30.0
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 MSME (mix of Micro and SME)

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

Development Impact

1. Access to finance for MSMEs including women owned MSMEs: As per IFC estimates, the MSME finance gap in India is ? 25.8 trillion (USD348.6 billion), equivalent to 18% of GDP, when aggregating both the formal and informal sector. By supporting financial institutions in offloading existing MSME loans, the project will free up capital for expanding additional financing to MSMEs. 2. Market integration: The Project will support the development of the securitization market in India both from the buy-side as well as from the sell-side. By introducing a new platform to buy loan portfolios of multiple FIs through a fund structure, the Project will demonstrate the effectiveness and viability of such a vehicle and encourage further such funds/structures. On the buy-side, IFC’s participation in this structure in India will encourage other domestic institutional investors as well as foreign investors to participate in the securitization market, which currently is dominated by local banks.

1. Innovative Financing instrument: The investment will support establishment of the first-of-a-kind credit fund in India with exclusive focus on investing predominantly in securitized debt securities which are majorly backed by MSME and income generating assets. The vehicle allows pooling of assets from multiple small and mid-tier NBFCs to create a replicable platform with diversification and scale. This innovative vehicle will mobilize funding from foreign institutional investors for the securitization market and channel it to NBFCs which focus on underserved MSMEs in India. Capital from the Fund will moreover allow the smaller and mid-tier NBFCs to create some debt market track record which, in time, will enable them to tap traditional capital funding. 2. Resource mobilization: It is expected that the Fund will leverage IFC’s role to mobilize funding from foreign institutional investors.

E&S Category Rationale / Risks and Mitigation

The project comprises a senior debt investment in Vivriti India Retail Assets Fund (VIRAF or the Fund) – India’s first asset-backed-securities fund. VIRAF will invest predominantly in pass through certificates backed by loans to micro, and small enterprises (MSEs). The asset originators targeted by VIRAF will include financial institutions (FIs) that extend finance to retail consumers, microenterprises and to small enterprises (including women owned enterprises). These may include other NBFCs, MFIs and small finance banks. The securitized pool of assets will include retail digital loans, vehicle loans, microfinance loans, and small enterprise loans. The E&S risks and impacts of the project will be limited and mostly relate to labour and working conditions and exposure to activities on IFC exclusion list. The fund will not support higher risk activities that may include involuntary resettlement, risk of adverse impacts on Indigenous Peoples, significant risks to or impacts on the environment, community health and safety, biodiversity, cultural heritage, or significant occupational health and safety risks. The fund will not support or invest in any coal-related project or any financial institution other than low-medium risk. The Fund will not support any FI involved in higher risk transactions and/or project finance/long term corporate finance. Hence, the E&S risk of the proposed investment is low-medium, and the project is categorized as FI-2 according to IFC's Policy on Environmental and Social Sustainability. The applicable performance requirements will be the IFC- FI Exclusion List. Additionally, in case of any direct lending/financing support to the originator(s), the Fund will require the originator to implement E&S procedure for reviewing loans against the relevant national E&S laws and regulations as applicable to the asset class.

The Fund Manager is a first time IFC client, and it currently does not have an E&S risk management system (ESMS)or procedure for the underlying asset-backed securitization portfolio. The pass-through structure allows for very limited diligence or subsequent monitoring of the asset pool. Hence, the E&S risk mitigation will primarily involve (i) specific eligibility criteria for the pool of assets to be supported (e.g., retail, microfinance, and small enterprise loans); (ii) exclusion of FIs-originators involved in higher risk transactions, project finance and long-term finance, (iii) exclusion of coal related activities and activities listed on IFC's exclusion list. In case of direct funding provided to the originators, the Fund will require the originators to implement E&S procedures for screening against the IFC Exclusion List and reviewing loans against the relevant national E&S laws and regulations as applicable to the asset class. This will be codified in ESMS for the Fund. The parent NBFC has an ESMS officer who will also oversee the E&S compliance of the Fund.

S.no	Title	Anticipated Completion Date	Status
1	Other1 - Establish ESMS	02/28/2023	Completed

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