46571 - Sanima SME 2022

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Summary of Investment Information

Project Number

46571

Company Name

SANIMA BANK LIMITED

Date SPI Disclosed

May 17, 2022

Country

Nepal

Region

South Asia

Projected Board Date

Jun 24, 2022

Environmental Category

FI-2 - Limited

Status

Completed

Last Updated Date

Sep 7, 2025

Department

Regional Industry - FIG Asia & Pac

Industry

Financial Markets

Previous Events

Approved : Jun 23, 2022
Signed : Jun 29, 2022
Invested : Jul 27, 2022

Sector

Commercial Banking - General

Project Description

The proposed investment is a 3-year US$ senior loan of up to US$20 million to Sanima Bank Limited (Sanima or the Bank), the 18th largest commercial bank in Nepal with the total assets of US$1.5 billion as of January 2022, with the proceeds exclusively used for on-lending to small and medium enterprises (SMEs) in Nepal (the Project). The Project is expected to contribute to improving liquidity in the financial sector and supporting the fast recovery of SMEs impacted by the COVID-19 pandemic, including the underserved rural SMEs. The Project is also a continuation of IFC’s systematic engagements in Nepal to improve the inclusiveness, competitiveness and sustainability of the financial sector in the country.

Associated Advisory Engagement

IFC AS is expected to support strengthening the Bank’s risk management frameworks, and digitizing its operations, which would allow Sanima to better serve the SME segment.

Sponsor / Cost / Location

Product Line	IFC Investment (million USD)
Risk Management
Guarantee
Loan	20.0
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 SME Borrowers

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

Development Impact

Project level outcomes

Stakeholder effects: Increased access to finance for SMEs: SMEs in Nepal suffer from an estimated financing gaps of US$2.9 billion, as SMEs face greater credit constraints especially during periods of tight liquidity. The Project will increase access to finance for underserved and rural SMEs to meet their requirements for working capital and business expansion, and provide them with greater financing certainty to allow them to grow their businesses.

Market creation outcomes Inclusiveness:

The Project will demonstrate to other banks the viability of SME centric business model (as most of the 27 commercial banks have historically focused on the corporate segment) with a particular focus on rural SMEs. This is expected to encourage other banks to adopt the business model and expand their outreach to rural SMEs. The Project's catalytic effects will be augmented by IFC's systematic engagement in Nepal alongside other banks to reach the underserved rural SMEs.

(i) Financing Structure: IFC will provide a medium-term US-dollar loan that is not readily available in the market due to the sub-investment grade sovereign rating. The medium-term loan will benefit Sanima by providing them with more financing flexibility as it serves as a cushion in their liquidity and enables Sanima to provide loans with longer tenor. Currently, the majority of Sanima's total borrowings (excluding deposits) are short term in nature. Medium-term financing is not often available in a challenging market environment where most banks are facing a shortage of liquidity.

(ii) Knowledge, Innovation and Capacity Building: IFC AS is expected to support strengthening the Bank's risk management frameworks, and digitizing its operations, which would allow Sanima to better serve the SME segment.

(iii) Frameworks Catalyzing Regulatory Change: The Project will test the effectiveness of the new regulatory pricing cap that was recently implemented in Nepal upon the transition from LIBOR to SOFR, in which the pricing is capped at 4.5% all-in cost over SOFR, instead of 4% all-in cost over US$ 6-month LIBOR. It is expected that the Project would support market development and stimulate participation of other investors thereby paving the way for future transactions under this newly adopted pricing cap.

E&S Category Rationale / Risks and Mitigation

The project entails a senior loan of up to $20 million to Sanima Bank ("Sanima" or "the Bank") to provide financing to Small and Medium Enterprises (SME). Sanima's SME portfolio mainly comprises businesses engaged in wholesale/retail trading, agribusiness, small scale manufacturing, and small and medium sized construction companies engaged in commercial and residential projects. These industry sectors in SME segment, present medium-low Environmental & Social ("E&S") risks and impacts which are readily manageable. The typical risks areas include labor and working conditions, occupational health and safety, supply chain risk including child labor and biodiversity risks in the agribusiness, air emissions, waste management, and handling of hazardous materials, in the SME borrower's operations. The project will not support coal-related activities, or 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, or d) significant Occupational Health and Safety risks. Hence, the project is categorized as Category FI-2 in accordance with IFC's Environmental and Social Sustainability Policy. IFC's applicable performance requirements for this project will be i) the Exclusion List; ii) additional list of restricted commodities and iii) the host country laws and regulations.

Sanima Bank has developed an Environment and Social Management System (ESMS) in line with Nepal Rastra Bank Guidelines. It has appointed an E&S officer for implementing the ESMS. The ESMS details screening against IFC Exclusion List and restricted commodity list and includes due diligence procedures for assessment of compliance with relevant national E&S laws and regulations for its entire lending operations. It also lays down criteria and guidelines for periodic supervisions of its portfolio companies. The Bank will further update the ESMS to include guidance on categorization of SME loans to meet the requirements of this project. The bank will also provide training to all the staff responsible for ESMS implementation. Sanima has adequate HR policies which are in line with IFC Performance Standard - 2 requirements and follows the applicable Life and Fire Safety requirements.

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Task Title & Description	Anticipated Completion Date
Upgrade Applicable Requirements	09/30/2022
Staff Training	09/30/2022

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