Estimating Loss Distribution for a Securitisation Transaction

In the latest edition of The Securitisation & Structured Finance Handbook 2018 (published by Capital Markets Intelligence) Vishal Saxena and Dilip Mohan from IFMR Capital have authored a chapter as part of the publication. The chapter discusses an approach to estimate the loss distribution for a loan portfolio. This loss distribution can be used to calculate the expected loss in an securitisation transaction, loan loss reserves, economic capital and value-at-risk. The authors first derive the limiting distribution of the portfolio loss as presented in papers by Vasicek (1987 & 1991) and then describe how they have extended the model to take care of the non-homogeneous subgroups in the portfolio.

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Structuring a Fund Platform for Financial Inclusion in India

In the latest edition of Securitisation & Structured Finance Handbook 2016/17 (published by Capital Markets Intelligence) Ravi Saraogi, IFMR Investments & Robin Tyagi, IFMR Capital, have authored a chapter on Structuring a Fund Platform for Financial Inclusion in India. The authors present the use of structured finance in designing a fund platform for greater capital market access for financial inclusion in India and highlight the potential that structured fund platforms have in attracting market participants to access the bond market.


This paper presents the design of a fund platform using principles of structured finance to enable greater capital market access for financial inclusion in India. A structured fund platform can tide over a tepid bilateral bond market and match the needs of investors and investees more efficiently. Central to the designing of a structured fund platform is quantifying the default risk in such structures. Accordingly, the paper specifically focuses on using the technique of Monte Carlo simulation to estimate risk. The results highlight the potential that structured fund platforms have in aligning disparate investor and investee needs. The paper has been divided into five sections. The first section gives an overview of the bond market in India. In the second section, we emphasise on the need for a structured finance approach to tide over frictions in capital markets. The third section provides the broad construct of the fund structure used in this paper to illustrate the methodology for risk estimation in fund structures. The fourth section gives an overview of the rating methodology used. The last section presents the output and concludes.

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MBS with an impact: Mortgage backed securitisation for affordable housing finance

In the latest edition of The Euromoney Securitisation & Structured Finance Handbook 2014/15 (published by the Euromoney Handbooks, London) Sreya Ray & Vaibhav Anand of IFMR Capital have authored a chapter on the topic of Mortgage backed securitisation for affordable housing finance. In the chapter the authors provide a perspective on affordable housing finance and the challenges that it faces, along with an appraisal framework for AHFCs. In addition they detail a case study of IFMR Capital’s first ever mortgage backed securitisation for an AHFC.


Affordable Housing Finance Companies (AHFCs) in India have emerged as a small but fast-growing segment committed to addressing the credit gap in the mainstream financial system for low-income households seeking mortgage finance. These AHFCs have overcome the challenges in credit appraisal of undocumented cash flows of low-income borrowers through a deep and localised understanding of the informal economy and innovative models to evaluate the financial position and creditworthiness using non-traditional data points. Given this non-traditional approach to credit appraisal, these AHFCs face challenges in accessing debt that they can then on-lend to their potential borrowers. Access to capital markets via securitisation can be a very effective tool to provide efficient, reliable and sustainable sources of funds for AHFCs on a maturity matched basis, provided the legal complexities and risks of a mortgage-backed securitisation (MBS) can be adequately managed. IFMR Capital pioneered the first ever MBS for an AHFC, Hebros AHL IFMR Capital 2014, on March 27, 2014, leading the way for AHFCs to enter capital markets.

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Structured finance for small business loans in India

By Vaibhav Anand, IFMR Capital

The fast emerging small business loan (SBL) segment caters to the micro, small and medium enterprises (MSMEs) and entrepreneurs which typically find it difficult to access funds through traditional sources. Banks mainly rely on the formal documents for financial and cash-flow analysis, credit history and availability to provide collateral for borrower appraisal. This approach results in the financial exclusion of many MSMEs. Microfinance institutions strive to provide a gamut of financial services to the low income households, however the small entrepreneurs and enterprises are typically not served by the MFIs. The quantum (up to INR 20 mn) and tenure (up to seven years) of the financial products in the SBL segment differs significantly from the products offered by MFIs. Apart from quantum and tenure, the SBL asset class differs from microfinance loans in other aspects- disbursement and collection mechanism, repayment behaviour, granularity of loans in the portfolio, and security for the loan (SBL can be secured).

Sensing a large gap between the required funding for MSMEs and the available sources – IFC estimated the near term financing demand for MSME sector to be more than INR 1200 crores – a number of NBFCs have developed lending models to cater the sector. Though the SBL lending model may be generalized, a significant variation exists in the lending model from one originator to another depending on the business (dairy, textile, machine tools, etc) or the type of product (working capital, machine financing, secured or unsecured etc). Based on the in-depth knowledge of local industry and social aspects, SBL lenders have developed unique but quality origination models. However, due to high geographical and industry concentration and borrower’s vulnerability to economic and business cycles, small originators face challenges while accessing funds for origination. Structured finance, which has successfully enabled MFIs, small as well as big, to access various funding sources, can help SBL originators as well. IFMR Capital has structured and arranged three SBL securitization transactions with more than INR 50 crores of underlying loans.

Bama Balakrishnan and Vaibhav Anand recently authored a chapter in the Securitisation & Structured Finance Handbook 2013/14 (published by the Euromoney Handbooks, London) that introduces the fast emerging SBL segment and discusses how the structured finance approach can be used to bridge the gap between MSMEs and capital markets through the SBL segment originators.

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Multi originator securitisation (MOSEC) in microfinance

Structured finance approach has provided microfinance institutions (MFIs) the access to diverse funding sources. During last fiscal year 2011-12, MFIs raised more than INR 20 billion through securitisation transactions. However around 85% of the funds raised were accounted by large MFIs who were capable of providing the critical sized unencumbered microloan portfolios which could be placed in the market. Smaller MFIs often find it difficult to provide a sufficiently large portfolio for a single originator securitisation transaction. The IFMR Capital’s multi-originator securitisation (MOSECTM) allows small and medium sized MFIs to combine their microloan portfolios in a single pool to achieve the required critical size.

Vaibhav Anand and Kshama Fernandes of IFMR Capital have recently authored an article “Multi-originator Securitisation (MOSECTM) in Microfinance” that was published in the Securitisation & Structured Finance Handbook 2012/13 by Euromoney Yearbooks (London), where they explain the MOSECTM structure and its benefits in detail.

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