46715 - Chola 2022 Loan

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Summary of Investment Information

Project Number

46715

Company Name

CHOLAMANDALAM INVESTMENT AND FINANCE COMPANY LIMITED

Date SPI Disclosed

May 26, 2022

Country

India

Region

South Asia

Projected Board Date

Jun 27, 2022

Environmental Category

FI-2 - Limited

Status

Completed

Last Updated Date

Feb 1, 2026

Department

Regional Industry - FIG Asia & Pac

Industry

Financial Markets

Previous Events

Approved : Jun 27, 2022
Signed : Jun 30, 2022
Invested : Jul 19, 2022

Sector

Other Non-Banking Financial Institution (NBFI)

Project Description

The proposed project comprises of an up to US$350 million investment in Cholamandalam Investments & Finance Company Limited (Ltd) (CIFCL, the Company) through a 3-year US dollar (USD)-denominated senior secured loan. IFC will provide up to US$150 million through its own account, and mobilize up to US$200 million from other lenders, with an unspecified greenshoe. The proposed project supports vehicle financing for micro, small and medium enterprises (MSME), with a focus on the low-income states (LIS) and rural regions of India. The Covid-19 pandemic has aggravated the already weak economic environment for this segment since they are less resilient to exogenous shocks. Thus, this project is part of IFC’s systematic approach in India where IFC will work with different financial institutions (FIs) to continue to support the recovery of MSMEs from the Covid-19 pandemic and stimulate growth.

Sponsor / Cost / Location

Product Line	IFC Investment (million USD)
Risk Management
Guarantee
Loan	150.0
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
Syndications	Loans to MSME (mix of Micro and SME)
Straight Senior Loan	Loans to MSME (mix of Micro and SME)

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

Development Impact

Stakeholders impact: Improved access to finance for MSMEs: The MSME sector plays a key role in the Indian economy, accounting for over 30% of the GDP and providing employment to more than 110 million people. Overall, the Covid-19 pandemic further intensified the issues around financing MSMEs. Commercial vehicle financing in particular was amongst the worst-hit segments in the financial sector given low vehicle utilization rates. Although MSME financing and CV financing have been recovering and are close to pre-pandemic levels, the recovery remains nascent, and inflationary pressures and supply chain bottlenecks pose a threat to the recovery. Continuing to provide access to finance to MSMEs will be crucial to ensure their sustained recovery from the pandemic. The proposed investment would support access to finance to MSMEs, for purchasing commercial vehicles, focusing on MSMEs in underserved areas like low-income states and rural regions of India. Market impact: Resilience: This Project, along with other efforts conducted by IFC in the MSME segment, is part of IFC’s systematic approach in India seeking to encourage FIs to increase access to finance for MSMEs by offering financial products and services catering specifically to this underserved segment. This project, together with other efforts by IFC, will signal confidence in financing MSMEs, and is likely to influence other financial institutions to grow their MSME portfolio and replicate this approach resulting in overall credit growth towards this underserved segment.

IFC will provide both financial and non-financial additionality through this project. Financial additionality will be provided in the form of: (i) resource mobilization, derived from mobilization of additional funding from other lenders. With respect to non-financial additionality, IFC will help in terms of: (i) Non-commercial risk mitigation. IFC’s role in this transaction will be a vote of confidence in CIFCL, providing comfort to other investors.

E&S Category Rationale / Risks and Mitigation

The Project entails a three-year senior secured loan to Cholamandalam Investments & Finance Company Limited (Ltd) (CIFCL, the Company). CIFCL's core business is financing of commercial vehicles (CV), housing loans, micro, small and medium enterprise (MSME) loans and providing loans against property (LAP) to clients with limited access to banking. The loan proceeds for this project will only support commercial and personal vehicle financing to individuals, MSME, with a focus on the low-income states and rural regions of India. Working capital financing, bill disc, or term loans to MSME or corporates is not envisaged. Hence, the project is categorized as Category FI-2 in accordance with IFC's Environmental and Social Sustainability Policy. The main E&S risks and impacts of the project derive from CIFCL's lending and financing activities, its labor and working condition practices across the company and its capacity and procedures in place to manage these risks. 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, or d) significant Occupational Health and Safety risks. For this investment, the E&S requirements will include the IFC Exclusion List and national E&S laws. As part of the Project, the CIFCL will be required to: (i) continue implementing its Environment and Social Management System (ESMS) procedures; (ii) remain committed to applying the labor standards established by IFC Performance Standard 2 (PS2); and (iii) submit a periodic report to IFC.

CIFCL has been an investment client of IFC and has a satisfactory E&S risk management system (ESMS) in place and an E&S officer responsible for implementing the ESMS. The level of ESMS implementation is adequate for the E&S risk associated. The ESMS details the policy, and procedures, to be followed for all transactions where applicable and includes negative list which is in line with the IFC exclusion list. The Company's HR policies are in accordance with PS 2 requirements and follows the applicable Life and Fire Safety requirements.

Contacts

For Inquiries About the Project, Contact

Cholamandalam Investment and Finance Company Limited
Mr. Hardik D. Pandya
Assistant Vice President – Treasury
+9122 40253308
hardikdp@chola.murugappa.com
Dare House, 1st Floor, 2, NSC Bose Road, Chennai 600001, Tamil Nadu, India

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