International Finance Corporation to invest USD 35 mn in NBFC firm Manappuram Finance

World Bank arm IFC Tuesday said it will invest USD 35 million (over Rs 240 crore) in non-banking financial company Manappuram Finance. The investment will help increase access to gold loans for low-income households and micro, small and medium enterprises (MSMEs), said a joint release by IFC and Manappuram Finance.

"IFC, a part of the World Bank Group, will invest USD 35 million in Manappuram Finance to help low-income households and small enterprises get access to loans against their gold assets," the release said. IFC said this is its first investment in a gold-loan NBFC in India. It is aligned with the strategic objective of increasing the resilience of the country's financial sector while improving financial inclusion, IFC said.

Gold loan financing companies offer loans to financially-excluded customers and MSMEs by enabling them to monetise their gold without the need for proof of income. "We are making our first investment in a gold-loan finance company to create opportunities for the rural and poor households to transition from informal to formal forms of credit," said Jun Zhang, IFC Country Head for India.

Through this investment, IFC is supporting one of the priorities of the Indian government to unlock the value of idle gold and bring a large part of India's unofficial savings into the formal financial system, Zhang said. IFC said it may also give advisory services to bring global best practices to Manapuuram's risk management systems to help it build capacity in MSME lending.

V P Nandakumar, MD & CEO of Manappuram Finance said, "we see this as an endorsement of our role as an agent of financial inclusion in India. IFC's investment will help us deepen our reach in rural and semi-urban areas to offer people a viable alternative to informal credit." This investment is part of IFC's ongoing efforts to facilitate long-term funding to underserved segments with a focus on farmers, MSMEs, rural areas, and women, said the release.

"IFC's first investment in the gold-loan sector comes at a time when the sector is becoming more formal, with better regulations and has more of a level playing field with banks," it said. According to the World Gold Council, India has 23,000 tonnes of gold with an estimated market value of USD 1 trillion.

But the current market size of formal gold loans is a mere USD 19.6 billion, which leaves the field open to pawn-brokers and usurious money lenders in rural areas. The government encourages formal financial institutions to enter the market not only to bring large stocks of idle gold into the mainstream for productive use but also to stem the rising indebtedness and exploitation, the release said.