On December 22, 2023, the Japan International Cooperation Agency (JICA) signed a loan agreement with L&T Finance Holdings Limited (LFH), an Indian financial institution, for up to US$125 million to improve access to finance in poor states (Note 1). The signing ceremony was held in Mumbai, India on March 12, 2024. The project will be implemented as a co-financing with the Asian Development Bank (ADB), which has signed a loan agreement for up to US$125 million. Rural areas in India are home to approximately 65% of India’s total population and account for 46% of the country’s GDP, supporting the country’s economic growth. However, the income level of the residents is low, and it is said that about 90% of the poor in India live in rural areas. After the outbreak of the new coronavirus infection, the rate of income growth has further declined, making poverty reduction in rural areas an urgent issue. JICA India Office Director Saito (left) and CFO of LFH attend the signing ceremony (LFH, ADB, JICA)
Another major challenge in rural areas is access to finance for the poor, including women, small and micro enterprises, and agricultural workers. For example, women-owned small and micro enterprises are at risk of illegal debt collection, as more than 90% of their loans come from companies that have not followed legal procedures. In addition, it is estimated that 70% of small farmers do not have bank accounts, making it difficult for them to borrow funds, which in turn hinders capital investment and productivity improvement. In recent years, the Indian government and the central bank have been promoting loans to socially vulnerable groups, particularly in rural areas.
The lender, LFH, is one of the leading financial institutions in the country and is strengthening its lending in poor states by leveraging its strength of having many offices in rural areas. This project will contribute to the correction of rural disparities and sustainable economic development in India by providing loans through LFH to women entrepreneurs, farmers, and small- and medium-sized micro businesses in poor states of the country. Goal 8 (Achieve both job satisfaction and economic growth) and Goal 17 (Achieve the Goals through partnerships).
In addition, 40% of the loan amount will be used to finance women-owned businesses, contributing to the “2X Challenge: Financing for Women” (Note 2), an initiative for women’s economic empowerment undertaken by G7 development finance institutions. In addition, this project is positioned as an initiative of the Facility for the Advancement of Financial Inclusion (FAFI) (Note 3), which was established in May 2023.
(Note 1) Refers to the 10 states of Assam, Bihar, Chhattisgarh, Jharkhand, Madhya Pradesh, Orissa, Rajasthan, Tripura, Uttar Pradesh, and West Bengal where the poverty rate exceeds 10%.
(Note 2) “2X Challenge: Financing for Women”: An initiative adopted by national development finance institutions, including JICA, at the G7 in June 2018. The goal was to mobilize US$3 billion by 2020 for projects that contribute to women’s economic empowerment, which was more than doubled to US$7 billion. 2X represents a goal to double the volume and impact of investments in women.
(Note 3) Facility for Accelerating Financial Inclusion, a framework established to contribute to sustainable development in partner countries through public-private infrastructure investment. (See related link for details)
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