CDC Group partners with Northern Arc Capital for first pooled bond issuance

The CDC Group, a development finance institution (DFI) and an impact investor in the UK, has partnered with Northern Arc Capital for its first-ever pooled bond issuance (PBI) transaction in India. The PBI worth Rs 320 crore will support six leading Indian microfinance institutions.

CDC’s investment in the transaction is supported by a partial guarantee provided by Northern Arc. It is a milestone for CDC as it is the first transaction structured by CDC under a PBI structure, according to a release.

CDC’s Rs 320 crore investment in a pool of senior secured NCDs will provide systemic liquidity to the six leading Indian microfinance institutions including Annapurna Finance, Arohan Financial Services, ASA International, Asirvad Microfinance Limited, Chaitanya India and Fusion Microfinance.

This investment is expected to support MFIs in providing over 630,000 new micro-loans to low-income households, primarily female and rural borrowers, increasing their access to finance and enabling them to manage cashflow and maintain or grow their businesses.

Srini Nagarajan, managing director and head of Asia at CDC, said, “This exciting partnership with Northern Arc marks CDC’s first pooled bond Issuance in India, and comes at a time when systemic liquidity is critically needed to mitigate the impact of Covid-19 on vulnerable population in India. We are pleased that our investment will facilitate access for small businesses and will especially ensure that more women in India have improved access to finance, helping to uplift their livelihoods, households and communities. Moreover, this PBI forms part of the ‘Strengthen’ pillar of CDC’s Covid-19 response and demonstrates our commitment to ensuring availability of long-term funding that supports business growth and low-income customers, who are most severely impacted by the pandemic. We expect that this would be the first of many other similar structures in which CDC would invest in future”.

The PBI product, developed by Northern Arc, pools together a set of debentures issued by diverse entities for one investor. These debentures are partially guaranteed by Northern Arc.

Dr Kshama Fernandes, chief executive officer of Northern Arc Capital said, “Northern Arc’s forte has been to introduce impact sectors to investors through its innovative products and structures. CDC’s first investment in a pooled bond issuance in the microfinance sector in India is testament to this. The structure has enabled originators to efficiently access a global DFI and avail long tenor debt on their balance sheet. We see this as a beginning of a long-term partnership that will enable our clients to raise capital through cycles.”

The CDC Group is UK’s first impact investor with over 70 years of experience of successfully supporting the sustainable, long-term growth of businesses in South Asia and Africa.

The company has investments in over 1,200 businesses in emerging economies and a total portfolio value of $6.2 billon. This year CDC will aim to invest over $1.75 billion in companies in Africa and Asia with a focus on fighting climate change, empowering women and creating new jobs and opportunities for millions of people.

CDC is funded by the UK government and all proceeds from its investments are reinvested to improve the lives of millions of people in Africa and South Asia.

Northern Arc Capital Limited (formerly IFMR Capital Finance Limited) is a leading digital debt platform that addresses the credit requirements of the underbanked in India.

These include financial institutions, mid-market enterprises, small businesses and individuals. Through its deep credit-insights, varied risk-models, structuring capability and agile technology, Northern Arc offers suitable debt products that meet the requirements of borrowers and lenders.

Since inception, Northern Arc has enabled over $10 billion of financing to its partner institutions through reputed domestic and global investors. Northern Arc’s exposure is spread across over 570 districts in 35 states and Union Territories in India, as on Mar 2021. It is backed by marquee private equity players like Leapfrog, IIFL, Accion, Affirma Capital (erstwhile Standard Chartered Private Equity), Dvara Trust, Eight Roads and Sumitumo Mitsui Banking Corporation.