IFC invests in Fullerton India Masala bonds to assist MSMEs

Investment to strengthen Fullerton India's reach to underserved retail and micro, small, and medium-sized enterprises

IFC Headquarters in Washington D.C.
IFC Headquarters in Washington D.C.

THE International Finance Corporation (IFC), a member of the World Bank Group, on October 5 announced that it has invested US$76 million in five-year unrated Masala bonds issued by Fullerton India Credit Company. The investment will strengthen their reach in underserved retail and micro, small, and medium-sized enterprise (MSME) segment in developing states.

Financing for MSME segment is a strategic focus of IFC’s financial inclusion work in India. IFC, which helped create the Masala bond market through its own first issuance in November 2014, says it is using this funding instrument to support companies in diversifying their funding sources.

Fullerton India has established itself as a leading financial services company for MSME finance reaching 1.65 million retail and MSME customers in 22 states. Through this investment, the company expects to reach 6,000 SME borrowers and 500,000 micro-enterprises in the next five years.

The Fullerton India head of strategy and business execution, Anand Natarajan, says MSME now represents a significant portion of its lending since it started focusing on this sector in rural and urban India in 2011. He notes that the IFC’s earlier investment in 2015 helped Fullerton India increase its support for the MSME segment and strengthen its lending systems and processes. “IFC’s renewed support strengthens our relationship, and paves the way for steady and inclusion-led growth of the company’s MSME loan portfolio,” he adds.

IFC says MSMEs form a large part of the Indian economy, accounting for 45% of the country’s industrial output and 40% of its exports. But there is a critical shortage in long-term funding. As per the 2012 study by the IFC and the Japanese government on MSME financing in India, there is a total finance gap of US$311.9 billion, against a total finance demand of US$485.7 billion.

“Our investment in Fullerton India through long-term capital markets instruments will set a market precedent and enhance the path for other similar institutions, to issue local currency bonds offshore,” says the IFC country head for India, Jun Zhang.

Specific to SME finance, IFC has invested close to US$1 billion in financial intermediaries in India to enable credit financing for SMEs. Since 1956, IFC has invested in over 400 companies in India, providing US$17 billion in financing to the private sector.

Fullerton India is one of India’s leading non-banking finance companies (NBFC). As of June 30 2017, it has assets under management of 117.52 billion rupee (US$1.80 billion). It has a network of 526 branches spread across 22 states and three union territories. Fullerton India is a wholly-owned subsidiary of Fullerton Financial Holdings of Singapore, which in turn is a subsidiary of Temasek Holdings.