7/29/2019 PIDG Case Study - Shriram

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CASE STUDY 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

systemso 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 operatorsenabling them to upgrade from contract drivers to

owners, or grow their small fleet of trucks. However, credit is in shortsupply 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 productprovided by the PIDGs

GuarantCo Facilityto help meet its funding requirements.

FINANCING THE AFFORDABLE PURCHASE OF TRUCKS

Shriram Transport Finance Company, India

PIDG IN DEVELOPMENT

The Private Infrastructure

Development Group (PIDG)

mobilises private sector investment

to assist developing countries in

providing infrastructure vital toboosting their economic growth

and combating poverty.

For more information on our work,

go towww.pidg.org

http://www.pidg.org/http://www.pidg.org/http://www.pidg.org/

7/29/2019 PIDG Case Study - Shriram

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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 makesfor 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 betterable to access similar guarantees from the domestic commercial marketbecause 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.