IFC to invest up to $40 million in housing finance firm Aavas Financiers

Aavas Financiers plans to use the IFC investment to expand affordable housing finance business in Rajasthan and neighbouring states


Aavas Financiers offers affordable housing finance for purchase, construction and extension of house to individuals in low and medium income group. Photo: Ramesh Pathania/Mint
Aavas Financiers offers affordable housing finance for purchase, construction and extension of house to individuals in low and medium income group. Photo: Ramesh Pathania/Mint

Mumbai: International Finance Corp. (IFC) Monday said it is planning to invest up to $40 million (approximately Rs257 crore) in housing finance company Aavas Financiers Ltd.

In a statement, IFC, the private sector lending arm of the World Bank, said it will subscribe to the company’s non-convertible debentures (NCDs).

Aavas is a subsidiary of Jaipur-based non-banking finance company (NBFC) AU Small Finance Bank Ltd, which is backed by private equity firm Warburg Pincus. Aavas Financiers and AU Small Finance Bank were previously known as Au Housing Finance Ltd and Au Financiers (India) Pvt Ltd respectively.

The housing finance company plans to utilize the funds to support affordable housing finance for purchase, construction and extension of house to individuals in low and medium income group in Rajasthan and neighbouring states.

Aavas Financiers’s customers include dairy farmers, carpenters, garment traders and artisans, IFC said, adding that currently almost 65% of the customers are self-employed.

The company operates in Rajasthan, Gujarat, Maharashtra, Madhya Pradesh, Delhi and Haryana through 94 branches, according to its website.

Recently, AU Small Finance Bank, one of 10 applicants to receive the Reserve Bank of India’s in-principle approval last year to start a small finance bank, received Securities and Exchange Board of India’s (Sebi) approval to launch an initial public offering (IPO).

AU Small Finance Bank is the only NBFC among the 10 entities to receive in-principle approvals to start small finance banks. In December, it received the final licence to start small finance bank operations. In February 2016, it had sold its mortgage business to strengthen its capital base.

As part of its small finance bank transformation process, AU Small Finance Bank sold a substantial stake in Aavas Financiers. The company’s current shareholders include Kedaara Capital, Partners Group, AU and members of the management.

AU Small Finance Bank currently has about 300 branches spread across 11 cities, and proposes to increase them to 400 by March 2018. Going forward, the upcoming small finance bank will continue to focus on small and medium enterprise and vehicle loan segment, as reported by Mint in September.

Recently, IFC also said it is investing up to $50 million in Capital First Ltd via five-year secured NCDs. Capital First focuses on MSME (micro, small and medium enterprises) and consumer financing. It offers loans for buying homes, two wheelers and consumer durables, as well jas loans against property, to entry and mid-level salaried employees of corporate entities and to self-employed individuals.

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