India Mortgage Guarantee Company

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	11547
Company name	Indian Mortgage Guarantee Company
Country	India
Sector	Finance & Insurance
Environmental category	C
Department	Global Financial Markets Group
Status	Dropped

Date SPI disclosed	August 18, 2008
Projected board date	September 18, 2008

Overview

Sponsor/Cost/Location

Development Impact

Contacts

Attachments

Project description

Note: This project (old version #11547) was initially brought to, and approved by, the Investment Review Committee in May 2003. Since the Investment Review Meeting, the transaction has been largely inactive. This was due to absence of the necessary regulatory framework to establish a mortgage guarantee corporation. It was decided by the management that the project would be presented to the Board once there was clarity and progress on the regulatory framework necessary for the project. The project now has four partners - National Housing Bank of India, United Guaranty Corporation, Asian Development Bank and IFC. The project has now been revived under the same project number.

This proposed project is an important part of IFC’s financial sector engagement in India, and involves an equity investment in India’s first mortgage guarantee company, India Mortgage Guarantee Company Limited (IMGC). The sponsors have agreed on the terms of a non-binding term sheet for the project, but this is no assurance that the project will ultimately be completed or approved by the boards of the respective proposed investors.

Anticipated development impact of the project

The proposed project will have development impact in the following areas:

- Increased home ownership for middle income households and deepening the financial market for housing finance - Increased activity in the housing sector
- Knowledge transfer to the company and the sector from the various sponsors of the company in helping develop the mortgage finance and guaranty market in India
- Risk Transfer: The mortgage guarantee product allows a portion of the risk of mortgage default to be transferred to the insurance market and to other institutional investors. This would allow the banking system a new and effective avenue of risk diversification and would allow the institutional investors to participate in the very large mortgage market which they would otherwise be closed to them.

IFC's expected development contribution

IFC has played a strong role in this project and has been associated with this effort since the beginning. In the initial stages, IFC made a major contribution to the development of the project concept this project has been developed as a private sector oriented institution to be run on commercial lines. IFC has played a facilitative role in order to balance the public and private sector participation in this company.

Although IFC has not invested in mortgage guarantee companies so far, IFC’s overall experience in the housing finance sector and in general financial institution building has proved valuable to all participants in the specific areas of project design, governance structures and financial evaluation.. In the future, IFC may support IMGC through a program of counter-guarantees that would enable IMGC to expand its ability to support the mortgage guarantee sector in a financially effective manner.

IFC brings to the project a wide and deep range of financial institution building experience in emerging markets. IFC also has experience in a wide range of housing finance markets and in creating and investing in structured finance products and counter guarantee programs. These skill sets offer clear additionality to the project. IFC also has a broad network of relevant institutional relationships. The continued importance of IFC to the project is recognized by all the partners.

Environmental and social issues - Category C

This project entails IFC support for a mortgage guarantee 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 project is required to inform IFC in the event of any change in the nature or scope of its contemplated business or operations.

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