- CDC Group, the UK’s DFI and impact investor, and Northern Arc have jointly structured and invested in a Pooled Bond Issuance (PBI) transaction
- Through the INR 320 crore (approx. US$ 43m) Pooled Bond Issuance commitment, CDC Group (“CDC”) will invest in the non-convertible debentures (“NCDs”) of six leading Indian microfinance institutions: Annapurna Finance, Arohan Financial Services, ASA International, Asirvad Microfinance Limited, Chaitanya India and Fusion Microfinance
- The capital raised by the Microfinance Institutions (MFIs) will be on lent to under-banked households. This investment is expected to support MFIs in providing over 630,000 new loans to primarily female and rural borrowers thereby helping to enhance financial inclusion in India
- This commitment forms part of CDC COVID-19 response and qualifies for the 2X Challenge
- Northern Arc acted as partial guarantor for the transaction
CDC Group, the UK’s DFI and impact investor, and Northern Arc, one of India’s leading digital debt platforms, have jointly structured a Pooled Bond Issuance (PBI) transaction. CDC’s investment in the transaction is supported by partial guarantee provided by Northern Arc. It is a milestone for CDC as it is the first transaction structured by CDC under a PBI structure.
CDC’s INR 320 crore investment in a pool of senior secured NCDs will provide systemic liquidity to the MFIs and will be utilized to provide micro loans to low-income households, increasing their access to finance and enabling them to manage cashflow and maintain or grow their businesses.
Srini Nagarajan, Managing Director and Head of Asia at CDC, said: “This exciting partnership with Northern Arc marks CDC’s first Pooled Bond Issuance in India, and comes at a time when systemic liquidity is critically needed to mitigate the impact of COVID-19 on vulnerable population in India. We are pleased that our investment will facilitate access for small businesses and will especially ensure that more women in India have improved access to finance, helping to uplift their livelihoods, households and communities. Moreover, this PBI forms part of the ‘Strengthen’ pillar of CDC’s COVID-19 response and demonstrates our commitment to ensuring availability of long-term funding that supports business growth and low-income customers, who are most severely impacted by the pandemic. We expect that this would be the first of many other similar structures in which CDC would invest in future”.
The PBI product, developed by Northern Arc, pools together for one investor a set of debentures issued by diverse entities. These debentures are partially guaranteed by Northern Arc. For this transaction, Northern Arc worked extensively with CDC through a virtual due-diligence process that covered all six entities, and to structure a product that meets the risk and return requirements of the investor.
Dr Kshama Fernandes, Chief Executive Officer of Northern Arc Capital said: “Northern Arc’s forte has been to introduce impact sectors to investors through its innovative products and structures. CDC’s first investment in a Pooled Bond Issuance in the microfinance sector in India is testament to this. The structure has enabled originators to efficiently access a global DFI and avail long tenor debt on their balance sheet. We see this as a beginning of a long-term partnership that will enable our clients to raise capital through cycles.”
About Northern Arc
Northern Arc Capital Limited (formerly IFMR Capital Finance Limited) is a leading digital debt platform that addresses the credit requirements of the underbanked in India. These include financial institutions, mid-market enterprises, small businesses and individuals. Through its deep credit-insights, varied risk-models, structuring capability and agile technology, Northern Arc offers suitable debt products that meet the requirements of borrowers and lenders.
Northern Arc acts as a critical bridge between emerging sectors and reputed investors, covering the wide gamut of credit opportunities through innovative products and structures. It has developed several innovative structures in the Indian market including the Multi-Originator Securitisation (MosecTM), the Covered Bond, the Pooled Loan/Bond Issuance and the Single Issuer Partially Credit Enhanced (SPiCETM) Bond.
Since inception, Northern Arc has enabled over USD 10 billion of financing to its partner institutions through reputed domestic and global investors. Northern Arc’s exposure is spread across over 570 districts in 35 states and union territories in India, as on Mar 2021. It is backed by marquee private equity players like Leapfrog, IIFL, Accion, Affirma Capital (erstwhile Standard Chartered Private Equity), Dvara Trust, Eight Roads and Sumitumo Mitsui Banking Corporation.