The Asian Development Bank (ADB) on Monday announced that it has signed a $40-million loan (in Indian rupee equivalent) with Northern Arc Capital (NACL) to support the livelihoods of microfinance borrowers and micro, small, and medium-sized enterprises (MSMEs) in India.

In a press release, the Manila-headquartered multilateral funding agency said that the loan is disbursed to Northern Arc as part of its ongoing Covid-19 response.

The Chennai-based NBFC will use the loan proceeds to on-lend and provide guarantees to financial institutions and individual borrowers. It will also on-lend to affordable housing finance companies, the statement said.

“The pandemic has had a deep impact in the country’s informal economy, especially among microfinance borrowers and MSMEs. NACL’s unique business model of working with the most impacted segment of MSMEs and financial institutions makes them an ideal partner,” said Christine Engstrom, Director, ADB’s Private Sector Operations Department.

Connecting financers

Northern Arc connects NBFCs, microfinance institutions (MFIs) and housing finance companies (HFCs) to mainstream financers for debt fundraising through a variety of products, such as partial risk guarantees for capital markets issuances, multi-originator securitization, and pooled loan/bond issuance.

“This transaction is significant as it will enable us to support small and mid-sized NBFCs across microfinance, small business loans and affordable housing finance, which are facing difficulties in attracting debt funding from investors,” said Northern Arc’s COO, Bama Balakrishnan.

“The funding will help us design new debt product solutions for clients. We will also utilise the investment as a catalyst to attract other investors into transactions that we structure and execute,” she added.