The IFC investment in Manappuram Finance will be given in the form of a three-year secured loan. (Photographer: Waldo Swiegers/Bloomberg)

World Bank Arm IFC Extends $35 Million Loan To Manappuram Finance

World Bank arm International Finance Corporation has extended $35 million three-year loan to Manappuram Finance Ltd., marking its maiden investment in a gold loan firm.

The investment comes at a time when non-banking financial companies are facing issues on multiple fronts, including a liquidity crunch and changes in NBFC norms by the Reserve Bank of India. The central bank has proposed a liquidity coverage ratio for non-banking lenders in revamp of its NBFC norms.

According to IFC, its loan to Manappuram Finance is in sync with its strategic objective of “increasing the resilience of the country's financial sector while improving financial inclusion”.

“We are making our first investment in a gold loan company to create opportunities for the rural and poor households to transition from informal to formal forms of credit,” IFC India head Jun Zhang said in a statement.

The money will be given as a three-year secured loan to the gold loan firm.

Gold loan companies, like Manappuram Finance, offer loans to financially-excluded customers and small businesses by enabling them to monetise their gold without the need for documentary proof of income.

IFC said the 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.

According to the World Gold Council, India has 23,000 tonnes of gold with an estimated market value of $1 trillion. However, the current market size of formal gold loans is only $19.6 billion, which leaves the field open to pawn shops and usurious money lenders in rural areas.

RBI has repeatedly expressed concern on the segment over a variety of matters.

IFC said the government encourages formal financial institutions to enter the market to not only bring large stocks of idle gold into the mainstream for productive use, but also to stem the rising indebtedness and exploitation.

“Through this investment, we are supporting one of the priorities of the 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.

“We see this as an endorsement of our role as an agent of financial inclusion in India,” said VP Nandakumar, managing director and chief executive of Manappuram Finance.

On Tuesday, Manappuram Finance shares fell 1.92 percent to Rs 132.75 apiece on the BSE while the benchmark Sensex gained 0.17 percent to end the day at 39,749.73 points.

Bloomberg Quint

Add BloombergQuint App to Home screen.