IFC to lend Jain Irrigation $5 m to set up new NBFC

International Finance Corporation (IFC), the multilateral lending arm of the World Bank, is extending a helping hand to Jain Irrigation Systems (JISL), for setting up a new non-banking finance company (NBFC).

IFC is planning to make a minority equity investment of close to $ 5 million as part of the initial capitalisation for the newly incorporated NBFC.

The proposed NBFC will provide debt financing to JISL?s customers through its dealer network across rural India.

JISL, one of the India’s largest integrated agribusiness players with manufacturing operations in micro irrigation systems (MIS), plastic pipes and sheets, dehydrated onions and processed fruits, will have the new NBFC headquartered in Mumbai.

According to IFC sources, the NBFC will finance the purchase of micro drip irrigation (MIS) and other agri-productivity tools in rural India.

The project is intended to create a viable player in the rural financing space with support from an established industrial player that has significant rural presence.

The new NBFC, being promoted by JISL, and the sponsors of JISL willl provide increased access to finance in the rural areas, especially to smaller farmers who currently have limited access to credit in purchase of agricultural productivity tools.

Besides improved credit access, it is expected that more farmers would be able install micro irrigation systems which, in turn, would improve water use efficiency, a critical consideration as water resources has started becoming scarce, said an IFC document on the project.

The board of directors of JISL had recently decided to set up its own NBFC to complement its business and improve balance sheet as well as focus on financial management.

According to the company’s latest presentation, the setting up of an NBFC will pave way for certainty of cost and timing of cash flows by reducing dependence on subsidy disbursement.

JISL, which has decided to transfer its solar business to its 100% subsidiary from July 1, 2011, will be taking up new initiatives to fuel the growth momentum.

The new initiatives include micro irrigation on pulses and paddy, more focus on cotton and seeds application, contract farming for mango and tomato, and processing of fruits like sweet lime and retail packaging of mango pulp.