47395 - NARC

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Summary of Investment Information

Project Number

47395

Company Name

NORTHERN ARC CAPITAL LIMITED

Date SPI Disclosed

Feb 7, 2024

Country

India

Region

South Asia

Projected Board Date

Dec 20, 2023

Environmental Category

FI-2 - Limited

Status

Active

Last Updated Date

Apr 25, 2024

Department

Regional Industry - FIG Asia & Pac

Industry

Financial Markets

Previous Events

Approved : Dec 20, 2023
Signed : Dec 30, 2023
Invested : Apr 19, 2024

Sector

Finance Companies

Project Description

The proposed project entails (i) an equity investment of up to US$40 million and (ii) a senior debt investment of US$40 million in Northern Arc Capital Limited (“Northern Arc” or “NACL” or “the Company”). Northern Arc is non-banking financial company (NBFC) which serves the micro, small and medium enterprise (MSME), affordable housing finance and agricultural finance segments, directly (through partnerships and co-lending) and through its institutional partners (primarily financial institutions). In addition, NACL has a fund management business (through its wholly owned subsidiary) and a placements business through its technology platform that provides a variety of services and products to participants involved with the Indian debt market. As of March 2023, Northern Arc had assets under management* of US$1.1 billion# and a domestic credit rating of AA- (Stable) by ICRA and India Ratings. IFC’s investment support will strengthen the Company’s capital and accelerate its lending to the MSME segment (the “Project”).

Associated Advisory Engagement

Sponsor / Cost / Location

Product Line	IFC Investment (million USD)
Risk Management
Guarantee
Loan	40.0
Equity	40.0

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)
Straight Equity	Loans to MSME (mix of Micro and SME)
Syndications	Loans to MSME (mix of Micro and SME)

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

Development Impact

-Increased access to MSME finance: IFC anticipates that the Company’s concerted efforts in the MSME finance segment, directly and via financial intermediaries, will help IFC increase access to MSME finance. -Competitiveness: The Project will promote greater competitiveness in the NBFC segment, by encouraging NBFCs to grow their MSME portfolio, especially to underserved, segments like women-owned enterprises.

IFC’s additionality in the Project will be both financial and non-financial. Financial additionality will be provided through IFC’s own-account equity support to the Company to support its growth trajectory and portfolio rebalancing plans. Non-financial additionality will be provided in the form of standard setting to help the Company implement good practices in areas related to E&S risk management.

E&S Category Rationale / Risks and Mitigation

The Company, including via its subsidiaries, provides financing to micro, small and medium enterprises (MSME), affordable housing finance and agricultural finance sectors as well as access to structured debt financing to corporates that operate in India. The Company also undertakes partnership lending and co-lending in association with other small sized financial companies, as well as intermediate retail financing through financial institutions such as NBFCs, housing finance companies, and small finance banks. The Company is primarily exposed to medium and low risk industry sectors within the MSME and corporate segments as well as through financial institutions from an Environmental and Social Risk review perspective. Key financial products include working capital financing, and short- and medium-term loans catering for agricultural finance, vehicle finance and MSME sectors. Within structured finance and placement business, the Company undertakes loan securitization, debt placement, commercial paper, and credit enhancement. Some of the sectors of direct and indirect exposures include supply chain (agri, pharma, electronics, metals), warehouses, renewable sector such as solar power projects, battery manufacturing, electronic vehicles, EV infrastructure (battery swapping) etc. Fund management business through the subsidiary, NAIM, includes alternate investment funds (fixed income debt funds), and portfolio management services, including for international investors. The investment profile across NAIM also reflect in general the similar asset classes as that of the NACL. Overall, these business segments and subsectors will potentially have limited environmental or social risks or impacts which will be few in number, generally site-specific, and readily addressable through mitigation measures and good industry practices. The Company and its subsidiaries will avoid investments in financial intermediaries other than low-medium risk. Hence, the E&S risk of the proposed investment is 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 i) the IFC- FI Exclusion List; ii) the relevant national E&S laws and regulations; and iii) the IFC Performance Standards to be applied to higher risk transactions. The existing exposure to coal related projects is zero and the client agreed that it will stay at this level throughout the time of IFC equity investment. The Company will disclose category A sub-projects (if any supported). The Company will disclose a summary of its updated ESMS on its website.

The key E&S risks and impacts derive from the NACL's own capacity to identify and manage the potential environmental and social risks associated with its financing portfolio as well as the portfolio held by its subsidiaries. The typical risks and impacts will be related to site specific occupational health & safety, emergency response, waste-water discharge and air emissions, labour and community issues and potentially land and biodiversity impacts depending on the nature and location of the business activities to be financed. NACL has a qualified E&S officer and extended E&S team. NACL will be required to upgrade its existing E&S risk management system (ESMS), including the scope of application to its subsidiaries in line with the IFC requirements to screen and assess the various financing products against the IFC Exclusion List, and local laws and regulations. Application of the IFC Performance Standards will be required in case of NAIM, and for other entities in case of higher risk transactions which may include 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. The upgraded ESMS will include procedures for screening, categorization, due-diligence including additional studies if needed, guidance including go/no go scenarios on certain debt structures/investments with potentially limited leverage, monitoring of the portfolio and use of external consultants for due-diligence. An external communications mechanism will also be required to be instituted as part of ESMS. The Company will also be required to conduct staff training and provide annual E&S report to IFC. The Company and its subsidiaries HR policies are generally in line with IFC PS-2 requirements.

Title	Anticipated Completion Date
Staff Training	04/27/2024
Establish SEMS	02/27/2024

Contacts

For Inquiries About the Project, Contact

Northern Arc Capital Limited
Saurabh Jaywant
Saurabh.jaywant@northernarc.com

For Inquiries and Comments About IFC, Contact

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Telephone: 202-473-3800
Fax: 202-974-4384

IFC supports its clients in addressing environmental and social issues arising from their business activities by requiring its real sector clients to set up and administer appropriate grievance mechanisms and/or procedures to address complaints from Affected Communities in relation to environmental and social issues arising from IFC's clients' business activities. Since 2012, IFC's Financial Intermediary clients applying the Performance Standards are required to develop External Communications Mechanisms to receive and review inquiries or complaints from any interested party regarding the E&S risks and impacts of their operations.

For IFC projects that are active or under consideration, individual(s), or their authorized representative(s), who allege they have been or will be adversely affected by E&S risks or impacts arising from IFC's clients' business activities, may submit a complaint to IFC directly for consideration. When receiving an E&S complaint, IFC engages with complainants and works with its clients to find solutions to E&S concerns as quickly and efficiently as possible.

Complaints can be submitted to IFC online at www.ifc.org/escomplaints or by email to EScomplaints@ifc.org.

IFC complaint response is separate from and complementary to IFC’s clients’ project level grievance mechanisms and IFC’s Independent Accountability Mechanism (CAO). Lodging a complaint directly with IFC does not, at any time, restrict access to CAO.

Affected communities have unrestricted access to the Compliance Advisor Ombudsman (CAO), the independent accountability mechanism for IFC and MIGA. CAO facilitates the resolution of complaints related to IFC and MIGA projects and sub-projects, undertakes reviews of IFC’s and MIGA’s environmental and social compliance, fosters public accountability for their commitments, and enhances the environmental and social performance of IFC and MIGA.

Independent of IFC and MIGA management and reporting directly to the IFC and MIGA Boards of Executive Directors, CAO helps resolve issues raised about the environmental and social impacts of projects through a neutral, collaborative, problem-solving approach via its Dispute Resolution function. It also reviews IFC’s and MIGA’s compliance with environmental and social policies, assesses related harm, and recommends remedial actions through its Compliance function. Additionally, CAO provides advice to IFC, MIGA, and their Boards to enhance environmental and social sustainability performance and minimize the risk of harm.

Complaints may relate to environmental and social harm regarding any aspect of the planning, implementation, or impact of a project or sub-project, and can be made by any individual, group, community, entity, or other party affected or likely to be affected by the environmental or social impacts of an IFC- or MIGA-financed business activity.

Complaints can be submitted by any of the following methods:

Online form: available at https://www.cao-ombudsman.org/
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Voice mail: +1 202 458 1973
Email: cao@worldbankgroup.org
SMS, WhatsApp, Telegram, and Signal: +1 202 650 2627

CAO receives and addresses complaints in accordance with the CAO Policy, which can be accessed at: https://www.cao-ombudsman.org/policies-guidelines.

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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