FIF Loan

Summary of Proposed Investment

This Summary of Proposed Investment is prepared and distributed to the public in advance of the IFC Board of Directors’ consideration of the proposed transaction. Its purpose is to enhance the transparency of IFC’s activities, and this document should not be construed as presuming the outcome of the Board decision. Board dates are estimates only.

Project number	26824
Company name	PT Federal International Finance
Country	Indonesia
Sector	Finance & Insurance
Environmental category	C
Department	Global Financial Markets Group
Status	Dropped

Date SPI disclosed	May 13, 2008
Projected board date	June 19, 2008

Overview

Sponsor/Cost/Location

Development Impact

Contacts

Attachments

Project description

PT Federal International Finance (FIF or the company) is a motorcycle finance company based in Jakarta, Indonesia, and part of PT Astra International Indonesia Tbk. (Astra), the publicly listed holding company of the Astra Group. The proposed investment is consistent with all aspects of IFC’s strategy. It would represent a stable source of funding which would help FIF to:

- expand its motorcycle financing activities to low income consumers,
- diversify its funding base, and
- reduce interest rate risks and better match its assets and liabilities.

Anticipated development impact of the project

The project is expected to have the following development impacts:

- Strengthening the Micro and Small Business Sector –

A large number of motorcycle owners use these as part of their SME/ micro businesses as an efficient mode of transportation to deliver goods and services. The Project will facilitate the increase of motorcycle financing available to SME/micro businesses.

Deepening NBFI Sector –

Indonesia’s financial sector is still heavily dominated by banks, which account for 80% of the financial sector assets. Indonesia needs to develop the Non-Banking Financial Institution (NBFI) sector, which can efficiently provide financing to consumers and SMEs through its ability to lower operational costs and serve smaller customers than most banks target. Additionally, NBFIs can provide healthy competition to banks, which will eventually foster the development of the financial sector even further. The project will provide the company with long-term fixed rate financial resources for its growth since most of the local commercial banks provide only floating rate and short-term financing. The support IFC provides to FIF will help it develop its own funding sources, which will give FIF the ability to compete with the banking system on an ongoing basis and provide efficient, competitive financing to consumers.

- Develop the automotive sector and increase mobility of people and goods –

As more vehicles are sold, mobility of people, goods and services will be increased, through increased availability of transportation equipment.

- Create Significant Job Opportunities –

The vast majority of motorcycles sold in Indonesia have a significant local value added component involving assembly within local factories as well as parts sourced from local suppliers. Not only does the project support job creation within the company, but also as the demand for motorcycles increases due to more availability of financing, the project will also indirectly support job creation along the value chain from local suppliers to distributors.

IFC's expected development contribution

Through the proposed investment, IFC would play an active role in:

- Development of a New Strategic Partnership –

IFC will form a new strategic partnership with an important player in the financing sector in Indonesia. It is expected that IFC will be able to leverage this partnership through this and subsequent transactions towards achieving the long term strategic objectives that have been established for IFC’s role in developing the Indonesian financial markets, with particular focus on the SME sector and low income housing.

- Supporting the Company Growth and Diversifying FIF’s Funding Sources –

FIF has to meet its funding needs for 2008 and there are very limited sources of long-term rupiah financing. IFC’s US$100 million equivalent, 5-year, fixed rate Indonesian Rupiah loan will help the Company achieve its financing target and diversify its funding sources, and improve the asset-liability structure and reduce the balance sheet risks.

- Supporting FIF’s Expansion Plans –

FIF is the leading motorcycle financing company with ~276 points of services located in 250 cities and towns nationwide. However, the main focus of FIF’s business remains in Java. In the future, FIF, as part of its market expansion strategy, plans to look at new markets in Eastern Indonesia (Papua) and in Aceh, which generally offer higher margins and currently are not yet served by many multi finance companies. Thus, IFC’s investment will support the company’s expansion plan and increase financing in underserved locations.

Environmental and social issues - Category C

This project consists of an IFC loan to a motorcycle finance company and has been classified as a Category C project according to IFC’s Environmental and Social Review Procedure. No further review is required. The company is required to inform IFC in the event of any change in nature or scope of its contemplated business or operations.

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