IFC, a member of the World Bank Group, will invest Rs 160 crore ($25 million) in Mahindra Rural Housing Finance (MRHFL), which is focused on rural housing. MRHFL will use the proceeds to give loans to low-income borrowers in villages.
MRHFL has 85 per cent of its portfolio in the rural areas, with an average loan size of $1,200. Its customers include farmers, micro-entrepreneurs, and salaried workers in the unorganised sector, who mostly do not have documentary evidence of income and lack a proven credit history.
"Most of the housing finance in rural areas is for incremental construction or completion of homes and lack of appropriately designed product options is a key challenge. We identified this need and built an innovative business model around it," Ramesh Iyer, Vice-Chairman & Managing Director, Mahindra Finance, said in a statement today.
"There is great potential for growth in this segment. This association with IFC will help us capitalise on these opportunities, while making a huge social impact,” he said.
Bridging the housing gap in India is a strategic priority for IFC, and aligns with the World Bank Group’s twin goals of eliminating extreme poverty and increasing shared prosperity. In recent times, IFC has made available nearly $2 billion, including mobilisation, for purchase and construction of affordable homes. According to estimates, every house built creates up to 13.5 direct and indirect jobs.
“IFC's investment will send a positive signal to investors, increasing confidence and encouraging potential creditors to provide long-term debt to this sector,” said Arun Kumar Sharma, Chief Investment Officer, IFC.
Home ownership helps improve living standards and the housing construction industry is a significant employment generator. Both are critical to IFC’s mission, Sharma added.