48249 - DCM Aavas Green Housing

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Summary of Investment Information

Project Number

48249

Company Name

AAVAS FINANCIERS LIMITED

Date SPI Disclosed

Nov 7, 2023

Country

India

Region

South Asia

Projected Board Date

Dec 11, 2023

Environmental Category

FI-3 - No Impact

Status

Active

Last Updated Date

Nov 1, 2024

Department

Regional Industry - FIG Asia & Pac

Industry

Financial Markets

Previous Events

Approved : Dec 19, 2023
Signed : Oct 25, 2024
Invested : Oct 29, 2024

Sector

Primary Mortgage Institutions

Project Description

The proposed project envisages an Indian Rupee (INR) denominated investment of up to US$75 million equivalent in Aavas Financiers Limited (“Aavas” or the “Company”), an existing debt client of IFC. The investment will be made by subscribing to the non convertible debentures to be issued by Aavas with a tenor of 5 years. Aavas will use the proceeds of the issuance for providing affordable housing finance for the purchase/ construction and extension of houses to individuals in low-income groups in India (the “Project”). The Company is in an advisory project with IFC to help develop its green affordable housing business, and there are discussions underway to use part of the IFC proceeds for financing retail purchases of green housing.

Associated Advisory Engagement

IFC has an ongoing advisory project with the Company and is currently in phase II in which IFC will continue to share its knowledge and expertise with Aavas to assist the Company in building its green housing portfolio by developing its green housing framework, including green housing evaluation parameters, operationalizing the certification process and training of trainers, among others.

Sponsor / Cost / Location

Product Line	IFC Investment (million USD)
Risk Management
Guarantee
Loan	75.57
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	Housing Loans to Individuals

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

Development Impact

Project outcomes: Stakeholder effects – Improved access to affordable housing finance: Rapid urbanization in India and the lack of affordable housing finance has led to several challenges including congestion, pressure on basic amenities and a severe shortage of housing units in cities, especially in low-cost segment. Majority of IFC's investment will be reserved for financing Economically Weaker Section (EWS) and Lower Income Group (LIG) segments. Stakeholder effects – Increased access to green housing finance: In addition to increasing access to affordable housing finance, the Project will also support Aavas in developing its green housing portfolio, with part of the total investment proceeds going towards green housing. Market creation: Competitiveness: IFC's support for the Project, will promote greater competitiveness in the affordable housing segment, by demonstrating the viability of providing such financing to lower income segments like EWS and LIG. The housing market in India is very active with both banks as well as NBFCs and HFCs engaging in providing housing finance. However, most of the larger NBFCs and HFCs focus on providing housing finance to higher income groups, and lower income groups remain unserved/underserved despite the massive shortages of affordable housing for these groups. Although, IFC has been supporting the development of affordable housing financiers through continued interventions, the shortage is substantial and would require continuous support, including supporting the development of the medium-sized regional NBFCs and HFCs that service lower-income groups.

Financial Additionality: Financing Structure: The proposed Project will provide longer-tenor financing of 5 years to Aavas and allow it to diversify its lender base. Housing financiers in India inherently face a challenge of matching their assets and liabilities, due to longer tenor of assets and limited availability of longer tenor funding. The Company's housing loan portfolio generates assets with average maturities of 6-7 years. In this context, IFC's investment will provide longer-term financing to Aavas, and will help in reducing the maturity mismatch. Non-Financial Additionality: Non-commercial risk mitigation: IFC's previous investment in the Aavas has been supporting Aavas in diversifying its financing sources. However, majority of Aavas' funding continues to come from banks, NHB and assignments. In this context, IFCs continued engagement with the Company, through both IFC's investment, as well as ongoing advisory engagement, will be a vote of confidence in Aavas, providing comfort to other DFIs (Development Finance Institutions) and institutional investors.

E&S Category Rationale / Risks and Mitigation

The Project entails a senior loan of up to US$75 million in Aavas Financiers Limited for financing retail buyers of affordable housing (including green) units in India. The use of proceeds will be only for on lending to individual borrowers for purchase, renovation, and extension of residential property units and will not be used for any builder construction finance, acquisition of only land, or towards non-residential property. Hence, the proposed project presents no adverse environmental or social risks or impacts and is categorized as FI-3 in accordance with IFC's Environmental and Social Sustainability Policy. The proceeds will not be used to support any coal-related activities or higher risk business activities that may include significant Occupational Health and Safety risks or impacts on the environment, community health and safety, biodiversity, cultural heritage, involuntary resettlement, or risk of adverse impacts on Indigenous Peoples. Aavas has adequate HR policies which are in line with IFC Performance Standard - 2 requirements and follows the applicable Life and Fire Safety requirements in its own operations.

Contacts

For Inquiries About the Project, Contact

Aavas Financiers Limited
Mr. Ghanshyam Rawat
President & Chief Financial Officer
+91-141-4659224
investorrelations@aavas.in
Mansarovar Industrial Area
https://www.aavas.in/

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