Mobilisation
The proceeds of the loan will be leveraged around five times over the five-year period of the facility, multiplying the number of borrowers benefiting from this initiative.
| Company | GuarantCo |
| Sector | Multi-sector |
| Country | India |
| Total Project Cost | USD 20m |
| PIDG Commitment |
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| Dates of PIDG involvement |
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Despite the scale and depth of the India’s financial system, and thousands of bank branches across rural areas, the poor in rural India still have very limited access to formal finance. A recent World Bank survey indicates that 70 per cent of the rural poor do not have a bank account and 87 per cent have no access to credit from a formal source. Informal sector lenders remain a strong presence in rural India, delivering finance to the poor on frequently extortionary terms. For Indian banks, serving the rural poor is a high-risk, high-cost proposition, with high uncertainty, and transaction costs related to small loan size and frequent transactions.
PIDG collaborated with Axis Bank, one of India’s largest private sector banks, to provide Northern Arc Capital, a Non-Bank Financial Company, with a c. USD 40 million guarantee to increase access to finance for underbanked borrowers in India mainly based in rural and semi-rural areas. The transaction will support Northern Arc to sustainably grow its loan portfolio within specific sectors such as microfinance, small business enterprises, commercial vehicle financing, affordable housing and education.
The proceeds of the loan will be leveraged around five times over the five-year period of the facility, multiplying the number of borrowers benefiting from this initiative.
An estimated 200,000 low-income and rural borrowers in India will ultimately benefit from increased access to finance.
Many small and medium-size enterprises will benefit through increased access to finance via the small business loans this transaction facilitates.
Given Northern Arc’s microfinance focus on female borrowers, it is expected that at least 50 per cent of the beneficiaries will be women.
This transaction demonstrates the benefits of offering longer tenors to Non-Banking Finance Companies, which can be replicated in the future to benefit the local people and the economy.
