FMO, the Dutch development bank, has today announced a new investment providing up to US$20m to Au Financiers (AUF), a non-bank finance company (NBFC) in India. AUF specialises in providing finance to entrepreneurs for the acquisition of small and medium-sized commercial vehicles. FMO was the lead arranger of a joint facility with other lenders who will together provide up to US$60m to the company.
Not only will the investment from FMO be used to expand AUF’s commercial vehicle finance business, but it will also help the company grow in new business segments such as lending to small and medium-sized enterprises (SMEs) and affordable housing finance. The facility will directly contribute to the creation of 2,000 jobs at AUF as well as thousands more through its client base of SMEs.
AUF’s core business offers collateralised loans for commercial vehicles to clients who are typically first-time entrepreneurs located in under-banked rural and semi-urban areas. The commercial vehicles, including tractors, trucks, vans, cars and two- and three-wheeled vehicles, are used for productive purposes such as agriculture and transport.
As well as providing finance for commercial vehicles, AUF provides finance to small businesses such as shopkeepers, manufacturers and traders with a successful track record, but with limited income documentation.
AUF now also provides housing finance for lower-income borrowers who purchase homes under affordable housing schemes offered by state governments, as well as to finance construction on a piece of land already acquired, or for home extensions. Housing finance in India is at a nascent stage with a mortgage/GDP ratio of 10% compared to 20% in China or 80% in the US.
India’s financial sector consists of more than 400 banks and over 12,000 NBFCs, which account for 12% of assets in the sector. Urban areas are generally well-banked, but the rural and semi-rural areas, where 65% of the population lives, are often heavily underserved as it is uneconomical for banks to open branches in these sparsely populated regions. NBFCs often play an important role in providing financial services in these areas, so therein FMO’s investment will have a strong development impact by improving access to finance for entrepreneurs.
Founded in 1996 in Jaipur, AUF has established a strong market position in Rajasthan, one of India’s poorest states, and also expanded into Maharashtra in 2006 and into Gujarat in 2009. Since then, growth has continued and it now employs around 2,000 people serving over 150,000 customers through its 173 branches in eight states, including Chhattisgarh, Goa, Madhya Pradesh and Punjab.
AUF has a relationship-based origination and credit model based on extensive, direct contact with clients through relationship managers. This is facilitated by AUF’s strong presence on the ground and locally-recruited staff that have a strong understanding of the local market. The vast majority of customers are self-employed first-time borrowers and do not have any formal documentation of income.
While many of AUF’s customers have low-incomes, all loans are given on productive assets and the company has detailed credit appraisal and debt collection guidelines to ensure that loans are not made to customers who are unable to meet repayments. Credit officers receive regular training in these processes. AUF also has a Social and Environmental Management System in place that ensures that the entrepreneurs it serves operate in accordance with local and national law and core ILO labour standards.
Commenting on the transaction, FMO’s CIO, Jurgen Rigterink said: “The facility will contribute to the creation of some 2,000 jobs in the company itself and beyond this we expect the investment to enable AUF to reach an additional 9,000 small entrepreneurs and SMEs in parts of regions of India which are historically underserved by commercial banks. AUF has performed impressively since it was founded in 1996 and we’re excited to be a part of the next stage of its growth.”
About FMO
FMO (the Netherlands Development Finance Company) is the Dutch development bank. FMO supports sustainable private sector growth in developing and emerging markets by investing in ambitious entrepreneurs. FMO believes a strong private sector leads to economic and social development, empowering people to employ their skills and improve their quality of life. FMO focuses on three sectors that have high development impact: financial institutions, energy, and agribusiness, food & water. With an investment portfolio of EUR 6.3 billion, FMO is one of the largest European bilateral private sector development banks. www.fmo.nl
Press contact:
Paul Hartogsveld
p.hartogsveld@fmo.nl
(+31 6 11 58 91 27)
