Mahindra Finance raises $200 million from IFC for MSME lending

India’s leading non-banking financial company (NBFC) Mahindra & Mahindra Financial Services Ltd (Mahindra Finance) has secured around $200 million of investment from International Finance Corporation (IFC).  The funding comes in at a time when small businesses across the country are facing challenges owing to a liquidity crisis.

According to a statement by Mahindra Finance, IFC, which is the private sector investment arm of the World Bank Group, has invested $75 million from its own account and is mobilising another $125 million as parallel loans.

The funds have been raised to create a dedicated pool of financing for micro, small and medium enterprises (MSMEs) in low-income states. At least $100 million will be earmarked for women-owned MSMEs.

The investment in IFC is part of its efforts to back non-banking finance companies in India, especially those that operate in low-income states or those who cater to women and MSMEs.

NBFCs are an important source of credit for India’s MSME sector. The sector feeds crucial industrial value chains and employs 124 million people, including semi-skilled and unskilled workers. MSMEs account for more than 80 per cent of industrial enterprises and over 45 per cent of exports, the company said. It further added that the biggest constraint they face is access to finance.

An IFC study, conducted in 2018, estimates the total credit gap for MSMEs in India to be $397.5 billion, around 15 per cent of GDP. The financing gap for MSMEs is more acute in low-income states.

“To expand financial services for MSMEs, IFC has been systematically supporting India’s NBFC sector,” said Hemalata Mahalingam, Manager, Financial Institutions Group, South Asia, IFC.

Mahindra Finance provides a host of financial solutions, including vehicle, tractor and agricultural equipment financing, to rural and semi-urban customers. The company delivers these through its physical network of over 1,300 branches as well as digitally, and through rural distribution initiatives like loan-fairs across the country. It has fuelled the entrepreneurial aspirations of more than 6.4 million customers in over 370,000 villages in India and has assets under management (AUM) of over $10 billion.

“Mahindra Finance has been powering inclusive growth in rural communities for over 25 years. Our experience in these markets reveals that to achieve true financial inclusion, access to formal credit for financially under-served segments is a necessity. Availability of credit for income generation, especially to women and low-income households, will further accelerate financial inclusion,” said Ramesh Iyer, Vice Chairman & Managing Director, Mahindra Finance.

In 2018, IFC invested an equivalent of $100 million in Mahindra Finance to increase loans to farmers to buy tractors, commercial vehicles, and other equipment for modern farming. IFC also invested an equivalent of $25 million in Mahindra Rural Housing Finance Ltd (MRHFL) for housing loans to the rural poor. Both Mahindra Finance and MRHFL are a part of the USD 20.7 billion Mahindra Group, whose relationship with IFC goes back to 1963.

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