IFC Promotes Innovation in India's Private Sector

This month, IFC Executive Vice President Lars Thunell visited India, one of our largest countries of operations and the location of some of our most innovative financing.

Since 1956, IFC has invested in 210 companies in India, providing nearly $3.5 billion in financing for its own account and $925 million for the accounts of participants in its loan syndication program. In recent years, IFC has grown its business in India substantially, with new commitments reaching $402.8 million in fiscal 2006. As of July 2006, IFC's held portfolio in the country was $1.26 billion, making it our fourth-largest country of operations.

In the last 50 years, IFC has supported start-ups like Bharat Forge and Titan Watches that eventually grew into global brands; firms that have become household names, including Bajaj Scooters, Arvind Mills, and Moser Baer; and larger companies, such as Tata Steel and Larsen & Toubro, in their overseas expansion. In the financial sector, IFC was a founding investor in such key institutions as the Housing Development Finance Corporation and the Infrastructure Development Finance Corporation and continues to partner with them.

IFC's Strategy for India

IFC's mission is to reduce poverty and promote sustainable economic growth. While India's economic growth rates are impressive, improvement in the quality of life for the poor has been less dramatic. IFC continues to focus on improving the country's investment climate by supporting greater private participation in infrastructure development as well as government efforts to increase investment and rural productivity.

To promote a vibrant private sector, we are focusing our activities on supporting:

• Private sector involvement in infrastructure financing
• Restructuring and modernization of the manufacturing and services sectors to become internationally competitive
• Enhancing rural productivity
• Development of new financial institutions and products

Upgrading Infrastructure

IFC is investing significantly in India's infrastructure, especially power, water, and transportation services. Upgrades are needed to sustain the country's growth and remove an impediment to economic competitiveness.

In fiscal 2006, we signed an agreement with the U.S.-based National Rural Electric Cooperative Association and the Power Finance Corporation, India's public financial institution for the power sector, to set up a public-private partnership for rural electricity distribution and provide advisory services for pilot electrification programs. This alliance is an important step toward India's goal of achieving universal electrification by 2012. The first project will be in West Bengal, where only 1 percent of the population currently receives electricity from the state utility.

IFC's $150 million loan to Cairn Energy this year for the development of oil and gas fields in Rajasthan was a significant step toward meeting the region's energy shortages.

IFC recently lent $15 million to India Hydropower Development Company for construction and acquisition of six smaller hydroelectric generation facilities in the states of Himachal Pradesh, Maharashtra, and Madhya Pradesh. We also signed an agreement to purchase carbon credits worth more than $6 million from the hydropower facilities; this transaction on behalf of the Dutch government will help the Netherlands meet its commitments under the Kyoto Protocol. These efforts are supporting a cleaner source of power and helping reduce greenhouse gas emissions.

We also recently entered the Indian water sector, with $25 million in financing for Chennai Water Desalination Limited, the country's first private project to supply desalinated water.

Helping Manufacturers Compete

IFC is providing long-term debt and equity for key investments in Indian manufacturing and services.

This past year, we provided a $26.5 million combined loan and equity investment to JK Paper, one of the country's leading pulp and paper producers, helping it meet domestic demand and improve its environmental systems. We also committed a combined loan and equity investment of $20 million for PSL Limited, India's largest producer of large-diameter steel pipes. And in the auto components industry, we provided financing for LGB and International Auto Limited to help those companies meet growing demand.

Enhancing Rural Productivity

As part of our efforts to increase productivity in India's rural areas, IFC's agribusiness projects include Blarampur Chini, United Riceland, and Mahindra Farm Services. IFC has also provided financing to Samrudhi, a microfinance institution in Andhra Pradesh, and to the Self Employed Women's Association, based in Gujarat, for trade facilitation centers that will serve its artisan members.

This month, IFC announced that it will provide $11 million equity to Suguna Poultry Farms Ltd. This will help the company pioneer an integrated business model, expanding its breeder farms, hatcheries, and feed mill capacity to become internationally competitive. It will create economic opportunities for more than 11,000 farmers associated with the company.

Strengthening the Financial Sector

IFC invests in and provides technical assistance to private financial institutions that expand services to underserved markets, including small businesses. Investments in India reflect a larger goal to develop and strengthen the financial sector in emerging markets.

We recently made a $2 million equity investment in Lok Investments, a fund set up to invest in microfinance institutions around India. We expect that this will result in microfinance loans to 1.5 million borrowers, primarily low-income people in rural areas, while helping local banks recognize the sector's profit potential.

We have also invested $31.5 million in Federal Bank, a midsize private sector bank in southern India, helping meet its growing need for capital and supporting its efforts to expand nationally.

This month IFC responded quickly to new guidelines from the Reserve Bank of India by investing $100 million in Upper Tier II subordinated bonds with a final maturity of 15 years to be issued by HDFC Bank. This will strengthen the bank's capital adequacy, diversify its funding sources, and help it set a new benchmark for raising Upper Tier II capital in the country's banking industry.

Learn more about IFC projects in India...

SouthAsia Enterprise Development Facility

IFC supports the development of small and medium enterprises in northeast India and other countries in the region through the SouthAsia Enterprise Development Facility. The SEDF program is laying the foundation for future investment opportunities by engaging with local banks to increase access to finance and working with governments to improve the business-enabling environment.

Learn more about SEDF...

IFC Against AIDS

The IFC Against AIDS program is demonstrating that India's private enterprises can partner with government, nongovernmental organizations, and international development agencies to curb the HIV/AIDS epidemic. The program is working with four IFC client companies in India—Ambuja Cement Foundation, Apollo Tyres, Ballarpur Industries Limited, and Usha Martin—to launch or expand workplace and community awareness and HIV prevention programs.

Learn more about IFC Against AIDS...

For more information contact:

Minakshi Seth
Communications Officer
New Delhi, India
E-mail: MSeth@ifc.org
Phone: +(91-11) 4111-1058