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    PIDG Case Study - Shriram

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    john_muellor
    Shriram Transport Finance Company provides affordable loans to small truck owners and drivers in India, allowing thousands to purchase vehicles and support their families. However, raising funds for these small loans was challenging. With support from GuarantCo and FMO's credit guarantee, Shriram was able to bundle loans into a large pool to attract investment. This innovative guarantee demonstrated the viability of credit enhancement products in India's developing securitization market and paved the way for domestic institutions to now meet Shriram's funding needs.

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    PIDG Case Study - Shriram

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    Shriram Transport Finance Company provides affordable loans to small truck owners and drivers in India, allowing thousands to purchase vehicles and support their families. However, raising funds for these small loans was challenging. With support from GuarantCo and FMO's credit guarantee, Shriram was able to bundle loans into a large pool to attract investment. This innovative guarantee demonstrated the viability of credit enhancement products in India's developing securitization market and paved the way for domestic institutions to now meet Shriram's funding needs.

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    Shriram Transport Finance Company provides affordable loans to small truck owners and drivers in India, allowing thousands to purchase vehicles and support their families. However, raising funds for these small loans was challenging. With support from GuarantCo and FMO's credit guarantee, Shriram was able to bundle loans into a large pool to attract investment. This innovative guarantee demonstrated the viability of credit enhancement products in India's developing securitization market and paved the way for domestic institutions to now meet Shriram's funding needs.

    Copyright:

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    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    373 views2 pages

    PIDG Case Study - Shriram

    Uploaded by

    john_muellor
    Shriram Transport Finance Company provides affordable loans to small truck owners and drivers in India, allowing thousands to purchase vehicles and support their families. However, raising funds for these small loans was challenging. With support from GuarantCo and FMO's credit guarantee, Shriram was able to bundle loans into a large pool to attract investment. This innovative guarantee demonstrated the viability of credit enhancement products in India's developing securitization market and paved the way for domestic institutions to now meet Shriram's funding needs.

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    FINANCING THE AFFORDABLE PURCHASE OF TRUCKS

    Shriram Transport Finance Company, India

    Thanks to an innovative finance scheme in India, thousands of poor truck owner-drivers can now afford to purchase their own vehicles, and generate income for themselves and their families. This not only benefits the drivers, but increases the number of safer and more environmentally friendly trucks on the countrys roads.

    Background At present around 65% of Indias freight traffic is carried by road, the majority of it by small operators. With their unstable incomes and lack of credit record, they find it difficult to access Indias conventional banking system so they rely on unlicensed and exorbitant money-lenders. Shriram Transport Finance Company is one of the few organised financiers of commercial vehicles that provides affordable finance to these small truck operators enabling them to upgrade from contract drivers to owners, or grow their small fleet of trucks. However, credit is in short supply in India, and Shriram is always hard pressed to raise funds to able to provide such small loans at affordable rates. Therefore, Shriram needed a ground-breaking credit enhancement product provided by the PIDGs GuarantCo Facility to help meet its funding requirements.

    PIDG IN DEVELOPMENT
    The Private Infrastructure Development Group (PIDG) mobilises private sector investment to assist developing countries in providing infrastructure vital to boosting their economic growth and combating poverty. For more information on our work, go to www.pidg.org

    CASE STUDY Shriram Transport Finance Company, India

    The deal One of Shrirams key funding strategies a product familiar in more developed countries is securitisation. This involves gathering many small truck loans into a large pool that can attract funding from established banks and other financial institutions. However, done inefficiently the cost of finance for Shriram would rise, and in turn be passed on to the small truck owners, with the risk that the loans become unaffordable. To avoid this, Shriram required access to affordable mezzanine credit guarantees that would back the loans Shriram makes for which there was no investor appetite in India in 2008. With Deutsche Bank struggling to syndicate such mezzanine guarantees of INR 2bn so urgently required by Shriram, it was GuarantCo, in collaboration with the Netherlands Development Finance Company (FMO), which was able to provide the critical facility. PIDG position GuarantCos and FMOs intervention illustrated the commercial viability of mezzanine guarantees in the embryonic Indian securitisation market, and allowed the viability of such a credit enhancement product to be established. The guarantee was cancelled before maturity, as the securitised loan portfolios excellent financial performance allowed the credit enhancement guarantees to be released early. Shriram is now better able to access similar guarantees from the domestic commercial market because the market now recognises the viability of these loans, and has stepped in to service Shrirams needs at a lower cost. With this guarantee product, GuarantCo has helped the development of Indias financial markets, and it continues to work with Shriram and other similar companies on ways to continue such development.

    DEVELOPMENT IMPACT
    Total investment in infrastructure enabled of INR 21 billion, of which GuarantCo Guaranteed Amount: INR 900m (US$19m) 64,000 affordable loans to small scale truck owner-operators. 128,000 people benefit, as each truck provides a livelihood to an average of two persons per vehicle. Shrirams activities bring the average truck age in India down by 2.5 years. GuarantCo and FMOs innovative credit enhancement product helped demonstrate its viability; the domestic commercial market is now better able to service Shrirams needs with similar products. The Shriram group is an Indian corporate leader in HIV awareness and reduction programmes; the Shriram Transport business particularly targets truck drivers (a high risk group), to run health and education programmes.

    CASE STUDY Shriram Transport Finance Company, India

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