ADB, IFMR Capital partner with IndusInd Bank to lend to Indian MFIs

Guarantee from ADB and IFMR to cover default risk of selected MFIs at agreed ratio

Asian Development Bank (ADB), IndusInd Bank (IBL) and IFMR Capital have signed second partial guarantee programme to provide local currency financing to microfinance institutions (MFIs) in India.

The guarantee from ADB and IFMR shall cover default risk of selected MFIs at agreed ratio. IndusInd Bank is selected as a local currency lender with initial allocation of up to $20 million of guarantee limits from ADB, according to a joint statement issued here.

"ADB's partial guarantee facility is designed to enable flow of credit to deserving microfinance companies across Asia," Hasib Ahmed, Head of Microfinance in ADB's Private Sector Operations Department was quoted in the statement.

Under the Programme, ADB has to date supported $207 million in local currency loans to 1.23 million individuals, a majority of whom are women.

IndusInd Bank was also roped in as one of the partners for the programme.

It was stated that the institutions are looking to further scaling it up by providing access to finance to over 200,000 households in the country.

Suhail Chander, Head - Corporate & Commercial Bank at IndusInd Bank, said IndusInd Bank has committed significant capital and efforts to grow in underdeveloped markets in India, including MSME finance, microfinance, agricultural finance, affordable housing and other similar sectors.

The association with ADB and IFMR Capital in the partial guarantee facility will enable to meet Bank's strategic objectives.

"Through the partial guarantee program, MFIs catering to the very lowest income households across the country have access to an alternative source of debt financing and can expand their loan book and outreach. The guarantee allows banks to leverage their risk appetite and significantly increase their lending to MFIs while diversifying their exposure across new geographies and districts," said Kshama Fernandes, Managing Director & CEO, IFMR Capital.

IndusIndBank's expertise and experience in the domain coupled with IFMR Capital's underwriting and risk management will help in deal execution and in due course of the transaction IFMR capital will also provide portfolio monitoring and surveillance support to ADB and IndusInd.

The partial guarantee programme was first structured and arranged by IFMR Capital in partnership with ADB in September 2012.

The programme has since then enabled financing to approximately 270,000 households in rural and semi-urban parts of India.

All loans as part of the ADB programme have met with 100 per cent on-time repayments, paving the way forward for continued expansion of the program, said in the statement.

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