IFC to pick up stake in IFMR Trust

Plans to invest around Rs 40 crore in a quasi-equity investment

International Finance Corporation (IFC) is planning to make a quasi-equity investment in IFMR Rural, which has been founded by the IFMR Trust. The proposed investment will be around Rs 40 crore.

IFMR Rural has been founded by the IFMR Trust, which has a majority shareholding. Other shareholders include Lok Group. IFMR Rural operates through around 150 branches in Tamil Nadu, Uttarakhand and Orissa.

According to the Corporation, IFC proposes to invest up to Rs 40 crore ($8 million) through a quasi-equity instrument in IFMR Rural Channels & Services Private Limited (IFMR Rural).

IFMR Rural is an investment and distribution company and provides financial products and services in remote rural areas of India through the KGFS model. A KGFS is a full service local financial institution model, providing various credit, insurance, savings, pensions, remittance and asset products, exclusively focused on the remote rural households in few contiguous districts and delivering a comprehensive suite of financial products through an automated branch based delivery structure.

The Company currently provides access to finance to more than 2.45 lakh enrolled customers (50 per cent of whom have been currently provided at least one credit/non-credit product) with a credit portfolio under management of around $12 million.

IFC’s proposed investment will help IFMR Rural scale up its lending and non lending businesses in its current areas of operation, in addition to helping the Company expand in newer geographies, including a few of the low income states in India.

According to the project disclosure, this project will help in expanding the outreach of access to microfinance in several of the poorer states in India through provision of both credit and non-credit products such as savings, insurance, pension and remittances.

IFMR Rural is expected to scale up its operations across the low income states in India such as Orissa, Madhya Pradesh and Uttar Pradesh as it expands across India.

IFC's assistance would potentially help the Company for further expansion in the low income states, further reducing cost of intermediation, achieving higher client outreach and developing best practices in the areas of risk management & product design (particularly for non-credit products).

IFC will play a key role by leveraging its relationships with other MFIs and MFI networks around the world to transfer knowledge of microfinance and introduce microfinance sector best practices to IFMR Rural, said the Corporation.

IFC's involvement would help the Company in potentially attracting lenders, banking and financial services partners and other equity investors in subsequent rounds of funding as well as for distribution tie-ups by signaling an institutional endorsement for the nascent venture's business model.

The project involves investing into a micro finance company engaged in micro-credit products for individual and group lending. The average loan size is less than $1,000. The E&S risks of the project are minimal and therefore the project has been classified as category FI-3.