48176 - Vastu Affordable Housing Equity

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Summary of Investment Information

Project Number

48176

Company Name

VASTU HOUSING FINANCE CORPORATION LIMITED

Date SPI Disclosed

Nov 21, 2023

Country

India

Region

South Asia

Projected Board Date

Dec 21, 2023

Environmental Category

FI-2 - Limited

Status

Active

Last Updated Date

Mar 17, 2024

Department

Regional Industry - FIG Asia & Pac

Industry

Financial Markets

Previous Events

Approved : Dec 20, 2023
Signed : Dec 31, 2023
Invested : Mar 13, 2024

Sector

Primary Mortgage Institutions

Additional Project Attributes

Blended Finance

Project Description

The proposed project envisages an IFC own account equity investment of up to US$40 million in Vastu Housing Finance Corporation Limited (Vastu or the Company), a non-banking financial company – housing finance company (NBFC-HFC), which provides affordable housing finance to lower and middle income segments and loans against properties (LAP) to micro, small and medium enterprises (MSMEs) in India. IFC’s primary equity investment will aid Vastu in further capitalizing the pick-up in credit growth in the affordable housing segment in the country post the waning of the Covid-19 pandemic. IFC’s investment will also help the Company offer green affordable housing loans to its customers, enhance their micro-housing and gender offerings, and improve their environmental and social (E&S) and climate risk governance.

Associated Advisory Engagement

The proposed advisory project will assist in building Vastu’s green housing portfolio by providing: (i) technical support to the Company in developing its green housing framework (including green housing evaluation parameters) as well as operationalizing Excellence in Design for Greater Efficiencies (EDGE) requirements in its loan underwriting processes; and (ii) capacity building for the Company’s staff with respect to green certification and monitoring with the use of the Climate Assessment for Financial Institutions (CAFI) tool.

In addition, the advisory project will support Vastu in developing and testing its green affordable housing finance value proposition in the self-construction segment and creating a roadmap for launching this proposition at scale. The advisory project also aims to support growth of micro –housing loans and improve diversity and inclusion within the Company and help Vastu promote women home ownership.

Sponsor / Cost / Location

Product Line	IFC Investment (million USD)
Risk Management
Guarantee
Loan
Equity	39.94

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 Equity	Housing Loans to Individuals

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

Development Impact

Stakeholder Effects: Improved access to affordable housing finance, including for women borrowers: IFC anticipates that the Project would help significantly increase access to affordable housing finance and encourage homeownership in the EWS and LIG segments, including for women borrowers. Rapid urbanization in India has led to serious development challenges including congestion, pressure on basic amenities, and severe housing shortages in cities, especially, in the low-cost segment. Housing financiers have been reluctant to finance the affordable segment due to the difficulties in assessing the debt servicing capacities of low- and middle-income group borrowers, and the high costs of servicing such loans. Within the affordable housing segment, women, especially those in lower and middle income groups, also remain an underserved segment. Increased access to green affordable housing finance: Limited penetration of green housing is a key challenge in the Indian housing market. Along with IFC’s investment, IFC will provide advisory support to Vastu to develop and grow its green housing portfolio from scratch, including creating a green housing framework. Contribution to Market Creation: Competitiveness: IFC’s investment and advisory support to Vastu, along with IFC’s other systematic investment and advisory engagements in the segment with other companies, would help promote greater competitiveness in the affordable and green affordable housing market in India. Although IFC has been supporting the development of affordable housing financiers through continued interventions, the shortage of affordable housing is substantial and would require continuous support, including supporting the development of medium-sized regional NBFCs and HFCs that service lower and middle income groups. Developing green housing opportunities remains important given widespread climate concerns; however, few HFCs, including the large financiers, are focused on lending for green housing uni

IFC’s additionality in this Project is non-financial. Non-financial additionality is provided via knowledge, innovation and capacity building, as well as non-commercial risk mitigation. Knowledge, Innovation and Capacity building: IFC has extensive experience in increasing financing to underserved segments like women and lower and middle income segments, as well as development of affordable and green housing finance in multiple emerging markets. More recently, in developing the green housing market in India, IFC has been partnering with various HFCs. IFC has a strong affordable housing/green housing advisory services team in India which will support Vastu in developing their nascent green housing book from scratch. IFC will share its technical knowledge and experience with Vastu through a proposed advisory focusing on: (i) building, piloting and scaling up the green housing value proposition, focused on self-built segment; (ii) supporting the growth of “micro-housing” portfolio, which targets small borrowers from the lowest income segments; (iii) building Vastu’s capacity to grow their housing book for women. Non-commercial risk mitigation: IFC expects that its investment in Vastu as a long-term equity investor will send a positive signal to the market and demonstrate confidence in the Company, which is a mid-sized early-stage affordable HFC, with a modestly seasoned loan portfolio and exposure to riskier segments like lower and middle income borrowers. Currently, most of Vastu’s funding is derived from domestic banks. IFC’s investment would send positive signals to other international investors, especially debt investors, who would derive comfort from IFC’s relationship, assessment, and due diligence of the Company. This will allow Vastu to diversify its debt funding base, and in the longer term potentially support an improvement in Vastu’s credit rating.

E&S Category Rationale / Risks and Mitigation

The project entails an equity investment of up to US$40 million in Vastu Housing Finance Corporation (Vastu or the Company). The Company operates as a nonbanking financial company – housing finance company (NBFC-HFC) offering home loans and loans against property to micro, small and medium enterprises (MSMEs). Vastu has NBFC subsidiary, Vastu Finserv, that offers commercial vehicle loans as well as used car loans to small and medium enterprises. Given the nature of the company’s operations which is engaged in retail housing loans to individuals, vehicle financing and small loans to MSMEs, the level of E&S risks 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 main E&S risks and impacts of the project derive from Vastu’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 projects 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. The exposure to coal related projects is zero and the company agreed that it will stay at this level throughout the time of IFC equity investment. For this investment, the E&S requirements will include the IFC Exclusion List and national E&S laws and regulations. The company will be required to apply Performance Standard 2 requirements to its own operations.

The key risks are related to the ability of Vastu to identify and manage environmental and social risks associated with its lending activities, in particular lending to MSME clients. Additional E&S risks and impacts of Vastu derive from the capacity and systems in place to manage these risks. Vastu will be required to (i) nominate an E&S officer (ii) develop and implement an E&S Management System (ESMS) at Vastu HFC and Vastu Finserv and (iii) provide training on ESMS to the staff. Vastu'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.

Title	Description	Anticipated Completion Date
Staff Training	Impart training to staff	01/12/2024
Nominate officers	Nominate E&S officer	12/22/2023
Establish SEMS	Establish an ESMS	12/22/2023

Contacts

For Inquiries About the Project, Contact

Vatsu Housing Finance Corporation Limited
Udit Rajiv Kariwala
CFO
Vastu Housing Finance Corporation Limited Unit 203 & 204, 2nd Floor, A Wing, Navbharat Estate, Zakar
udit@vastuhfc.com
9833316936
https://www.vastuhfc.com/

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