Northern Arc raises $50 mn debt from U.S.-based DFC
The past year has been difficult for non-banking finance companies (NBFCs) to raise capital due to the liquidity crisis in the sector and also with the Covid-19 pandemic disrupting businesses across sectors. Despite this, Chennai-based Northern Arc, an NBFC that provides access to debt for the country’s underbanked population and enterprises, has managed to raise $50 million in debt financing from U.S. International Development Finance Corporation (DFC), one of the world’s leading impact investors.
The first tranche of $25 million from DFC was disbursed in December and the remaining $25 million was made available recently, Northern Arc said in a statement on Tuesday, adding that the funds will be deployed towards on-lending to financial institutions as well as lending directly to retail customers through the co-lending product and to mid-market corporates.
“Northern Arc plays an important role in the Indian financial ecosystem by bringing underbanked businesses and households under the ambit of formal finance. A large proportion of these are women borrowers and entrepreneurs. A women-led organisation, the team strongly believes in diversity and the role women can play in generating positive outcomes for society and for the economy as a whole,” Kshama Fernandes, managing director and CEO, Northern Arc said in a statement.
The pandemic has struck a big blow to microfinance borrowers in both urban and rural areas for whom credit sources have dried up over the last several months. About 50% of Northern Arc’s present DFC funding, which comes to around ₹150 crore, would be utilised to generate loans towards microfinance institutions (MFIs). The primary target for these loans are women.
“Many communities across the globe face acute food security, sanitation, and financial inclusion challenges, which adversely impact women-owned enterprises,” said Algene Sajery, vice president, DFC’s Office of External Affairs, adding that “DFC’s support for Northern Arc is an investment in women’s economic empowerment.”
About 50% of Northern Arc’s present DFC funding, which comes to around ₹150 crore, would be utilised to generate loans towards microfinance institutions (MFIs). The primary target for these loans are women.
Along with microfinance borrowers, over the last one year, NBFCs, early-stage businesses, and small and medium enterprises (SMEs) have also been facing liquidity crunch despite strong business models. To that end, according to Northern Arc, about 20% of the DFC funds, which translates to around ₹75 crore, will go towards financial institutions that serve the agri value chain, and the remaining will be used for long term and working capital facilities for mid-market corporates and SMEs.
Northern Arc expects these credit lines to benefit over 10 NBFCs, several mid-corporates and over 20,000 SMEs across India. Till date, the NBFC has enabled debt financing of about ₹90,000 crore for its clients across microfinance, small business finance, affordable housing finance, vehicle finance, agriculture finance, and others.
Till date, Northern Arc has also raised equity investment of ₹1550 crore, which includes a strategic investment by Japan’s SMBC, one of the world’s largest banking institutions.