A consortium led by IFC, a member of the World Bank Group, will invest $550 million in an ECB investment round in Mumbai-based L&T Finance, the wholly owned subsidiary of L&T Finance Holdings Ltd, a non-banking finance company (NBFC).

In the current and first round of investment, the consortium comprising IFC, BNP Paribas, Citibank, and DBS Bank have brought in $275 million, with IFC’s share pegged at $125 million of the total. L&T Finance will match IFC's investment by contributing up to $375 million for farm equipment financing. At least 60% of the combined fund will be used for lending to farmers to buy farm equipment in the low-income states of India.

Says Dinanath Dubhashi, managing director and CEO of L&T Finance Holdings, “Investments from organisations like IFC, which follows stringent due diligence before investing, reaffirms our strategy for growth and diversification of liabilities.”

IFC is the largest global development institution focussed exclusively on the private sector in developing countries. IFC prioritises investment and advisory engagements which promote modern and climate-smart farming practices, increases farmers’ incomes, and improve agricultural logistics.

“Addressing the large rural finance gap and supporting modernisation of agriculture are key components in sustaining India’s growth story and meeting the government’s commitment to double farmers income by 2022,” said Hemalata Mahalingam, manager, Financial Institutions Group, IFC South Asia.

Indian farming largely consists of marginal farmers who hold small tracts of land as opposed to large-scale corporate farming in developed countries. This makes it difficult for farmers to access capital to mechanise their farming and this in turn brings down the overall productivity. According to the National Bank for Agriculture and Rural Development, there is a formal financing gap of $80 billion in agricultural financing. Several NBFCs are now focussing on giving credit to small farmers and the IFC’s investment in L&T Finance underscores this need.

Says Dubhashi, “Our business strategy is actively aligned to the needs of our nation. NBFCs have a crucial role to play in financial inclusion in India. Lending scientifically and methodically to customers who do not have access to last mile credit is the next opportunity for NBFCs.”

Apart from farm equipment finance, L&T Finance’s portfolio includes two-wheeler finance and micro loans for rural women entrepreneurs.

This is the third investment in the L&T Group in recent years by IFC. In 2017, IFC invested ₹667 crore in the country’s first ever green bonds sold by L&T Infrastructure Finance. Last year, IFC invested $75 million in in L&T Housing Finance, a subsidiary of L&T Finance Holdings. The former investment was meant to finance solar energy projects across the country while the later was meant to help L&T Housing advance more loans to low-cost housing.

Follow us on Facebook, Twitter, YouTube & Instagram to never miss an update from Fortune India. To buy a copy, visit Amazon.