IFC leads $550 million ECB investment round in L&T Finance
July 4, 2019, Mumbai, India: L&T Finance Ltd., the wholly owned subsidiary of L&T Finance Holdings Ltd., will receive $550 million in an ECB investment round anchored by IFC, a member of the World Bank Group, and BNP Paribas, Citibank, and DBS Bank Limited.
In the first tranche, the investors have contributed $275 million. Of this, IFC is bringing in $125 million, which will be utilized by L&T Finance to expand its farm equipment finance bookby extending loans to farmers for buying equipment and modernizing farming.
With the closure of this financing deal with foreign banks as lenders, L&T Finance has taken a step further in diversifying its funding sources. This follows the successful public issuances of Non-Convertible Debentures (NCDs) in March and April 2019, by L&T Finance Ltd.
Mechanization of farming plays a crucial role in increasing agricultural productivity. However, purchasing a tractor and other farm equipment is a difficult decision for small and marginal farmers due to lack of timely financing options. Eighty-six percent of Indian farmers are smallholders. According to the National Bank for Agriculture and Rural Development, there is a formal financing gap of $80 billion in agricultural financing. Specialized NBFCs, such as L&T Finance, with their widespread reach and tailored solutions, serve as an important source of credit to small farmers.
“Our business strategy is actively aligned to the needs of our nation. NBFCs have a crucial role to play in financial inclusion in India. Lending scientifically and methodically to customers who do not have access to last mile credit is the next growth opportunity for NBFCs. We are investing in technology, and data and analytics to lead this change,” said Dinanath Dubhashi, Managing Director & CEO, L&T Finance Holdings. “Investments from organization like IFC, which follows stringent due diligence before investing, reaffirms our strategy for growth and diversification of liabilities.”
IFC prioritizes investment and advisory engagements which promote modern and climate-smart farming practices, increase farmers’ incomes, and improve agricultural logistics.In addition to farm equipment finance, the rural book of L&T Finance also comprises two-wheeler finance and micro loans for rural women micro entrepreneurs.
“Addressing the large rural finance gap and supporting modernization of agriculture are key components in sustaining India’s growth story and meeting the government’s commitment to double farmers’ income by 2022,” said Hemalata Mahalingam, Manager, Financial Institutions Group, IFC South Asia. “This project will promote inclusiveness in accessing finance.”
IFC was one of the early institutional investors in the NBFC space and has successfully supported several asset financing NBFCs. IFC invested $100 million of debt in L&T Infrastructure Finance for on-lending to developers of solar power projects and $75 million of debt in L&T Housing Finance for on-lending to developers of affordable housing units.