46327 - MMFSL Debt

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Summary of Investment Information

Project Number

46327

Company Name

MAHINDRA AND MAHINDRA FINANCIAL SERVICES LIMITED

Date SPI Disclosed

Jun 6, 2024

Country

India

Region

South Asia

Projected Board Date

Mar 28, 2024

Environmental Category

FI-2 - Limited

Status

Active

Last Updated Date

Jul 8, 2024

Department

Regional Industry - FIG Asia & Pac

Industry

Financial Markets

Previous Events

Approved : Mar 28, 2024
Signed : Mar 30, 2024
Invested : Jun 10, 2024

Sector

Other Non-Banking Financial Institution (NBFI)

Project Description

The proposed project envisages a secured funding in Mahindra and Mahindra Financial Services Limited (“MMFSL” or the “Company”) of up to US$200 million or INR equivalent, for growing its portfolio of loans to micro, small & medium enterprises (MSMEs). 100% of IFC’s investment will be earmarked for on-lending to women-owned MSMEs (WMSMEs) in rural areas.

Sponsor / Cost / Location

Product Line	IFC Investment (million USD)
Risk Management
Guarantee
Loan	200.0
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

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

Development Impact

Stakeholders Impact: Improved access to finance for to women borrowers: IFC anticipates that the proposed investment will help increase access to finance to WMSMEs. The MSME finance gap is estimated to be over US$300 billion, equivalent to roughly 13% of GDP. WMSMEs tend to suffer more from higher perceived risk by formal financial institutions. WMSMEs face a finance gap estimated at US$29 billion, equivalent to about 1% of India’s GDP, and almost 10% of the total MSME finance gap in the country. The Project will help MMFSL to provide much needed finance to underserved WMSMEs who need financing for income generation purposes. Market Impact: IFC anticipates that via demonstration and replication channels, the Project will promote greater inclusiveness in the broader MSME financing market by encouraging other NBFCs, especially those operating in the vehicle financing space, to scale-up their lending to WMSMEs. Further, women entrepreneurs in India face a rejection rate of 19% by lending institutions, more than twice the rate of 8% for men and approximately 90% of women entrepreneurs in India have not availed financing from formal FIs and rely often on riskier informal sources primarily due to the lack of collateral required by formal institutions. IFC anticipates that by supporting MMFSL’s commitment to expanding the Company’s WMSME portfolio in rural areas, the Project will demonstrate to peer NBFCs the business case for lending to this underserved segment, ultimately resulting in higher access to finance for women entrepreneurs in India.

Financial Additionality Financing structure: IFC’s US$200 million secured funding will provide MMFSL with much-needed funding to help diversify its sources of financing. MMFSL’s loan disbursements have grown at approximately 14% year-on-year, which has resulted in a significant amount of medium- to long- term financing needs to support the expansion of the Company’s business, including the SME and leasing businesses lines which MMFSL considers as the new growth engines of its business. The need for additional financing is even more pronounced for some of the strategically important segments, such as the WMSMEs, given the Company’s interest in gender lending, as well as its strong track record as a priority sector lending (PSL) champion in India. Non-commercial risk mitigation: IFC’s investment comes at a time when MMFSL’s primary clients, the very small enterprises (VSEs) and SMEs located in semi urban and rural area focus on expanding their businesses in the aftermath of the COVID-19 pandemic. IFC’s investment will be both a vote of confidence in, and a stamp of approval for the Company to grow its portfolio of loans to WMSMEs, which is considered disproportionately risky. This is expected to send a positive signal to other potential long-term investors who will then be incentivized to provide the financing MMFSL requires to grow lending to priority and underserved segments. The unrestricted access to additional sources of borrowing will help the Company further diversify its funding base in lockstep with the expansion of its MSME portfolio.

E&S Category Rationale / Risks and Mitigation

The project involves a US$ 200 million senior loan to support the growth of Mahindra and Mahindra Financial Services Limited’s (Mahindra Finance, company, or MMFSL) portfolio of vehicle loans to women borrowers. The proceeds of the loan will be entirely used for women-owned micro small and medium enterprises (WMSMEs) from semi-urban and rural areas of India. Given the nature of the activities to be supported, the level of E&S risk is considered as medium-low. Hence, the project is categorized as Category FI-2 in accordance with IFC’s Environmental and Social Sustainability Policy. The project will not support coal-related activities and higher risk business activities that may involve a) involuntary resettlement, b) risk of adverse impacts on Indigenous Peoples, c) significant risks to or impacts on the environment, community health and safety, biodiversity, cultural heritage, d) risk of significant retrenchment or e) significant Occupational Health and Safety risks. For this investment, the E&S requirements will include the IFC Exclusion List and national E&S laws and regulations. MMFSL's HR policies are aligned with Performance Standard 2 on labor and working conditions and the company follows the applicable Life and Fire Safety requirements in its own operations

The key risks are related to the ability of MMFSL to identify and manage environmental and social risks associated with its lending activities to the WMSME clients. Additional E&S risks and impacts of MMFSL derive from the capacity and systems in place to manage these risks. MMFSL has been an investment client of IFC and has a satisfactory E&S risk management system (ESMS) in place. The company has appointed two E&S officers responsible for implementing the ESMS. The ESMS details the policy and procedures to be followed for all transactions where applicable. The current ESMS will be applied to the proposed IFC project as well. MMFSL will be required to: (i) maintain its ESMS procedures; (ii) apply Performance Standard 2 requirements to its operations; and (iii) submit a periodic report to IFC.

Contacts

For Inquiries About the Project, Contact

Mahindra and Mahindra Financial Services Limited
Mr. Prashant Khanchandani
Asst. Senior Vice President – Treasury
N.A
mmfsl_treasury_bank@mahindra.com
Mahindra Towers – 4th Floor, Dr. G M. Bhosale Marg, P. K. Kurne Chowk, Worli, Mumbai – 400018, Maharashtra, India
https://www.mahindrafinance.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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