India: MFIs to Form Rs 650 Crore Loan Pool for Securitisation

Dec 2018
India, December, 07 2018 - Some 30-35 microfinance companies have come together to create a common loan pool of about Rs 650 crore, which will be securitised and sold to banks so as to raise funds at a time when the sector is facing a credit squeeze.

Sale of the loans on their books will help free up capital for the participating microfinance institutions (MFIs) and help them grow business without raising fresh resources. Business growth has taken a hit due to the credit crisis following the IL&FS default.

Securitisation of the first tranche of Rs 400 crore is likely to be carried out in a week or so, two people familiar with the development told ET.

The second installment, of around Rs 100 crore, will happen immediately after that, said a senior executive at the Microfinance Institutions Network (MFIN), an association of MFIs in India. MFIN is driving the idea to help small MFIs with a little knowledge of complex treasury operation such as this to raise resources when borrowing cost has risen amid the credit squeeze.

Some 20-22 MFIs will take part in the first tranche, while another 7-8 will pool in their loans for the second. MFIN has 49 members, including 19 large entities with more than Rs 500 crore loan book and controlling 90 per cent of the sector’s loan outstanding and 88 per cent of client base. A third tranche of asset sale of Rs 150 crore will happen in the fourth quarter. Northern Arc Capital, which structures and invests in MFI debt, is managing the common securitisation pool. Sources said banks such as State Bank of India, Kotak Mahindra Bank and IndusInd Bank were likely to buy assets from the common pool. Securitisation is a process to pool in loan receivables and sell their related cash flows to third-party investors as securities.

The pricing part for the deals will be done next week. “This is the right time for MFIs to enter into a multi-originator structure that provides both critical mass as well as diversification on account of pooling loans across MFIs,” said Kshama Fernandes, chief executive at Northern Arc Capital.




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