From Looking to Seeing

By Kshama Fernandes, CEO, IFMR Capital

I met today with the promoter and CEO of one of our newer Small Business Loan Originators and visited some of their end borrowers in Bombay. I heard an interesting story of their very first client not too long ago. This was a sandwich vendor who runs a makeshift stall outside the Bombay Stock Exchange (BSE) and has been supplying sandwiches to the entire BSE crowd for years. Imagine a business with a captive clientele in one of the oldest and the largest exchange in India. One would think the vendor must be an attractive credit opportunity for any sensible lender. Well, it so happened that the gentleman had no access to formal credit for decades despite being located on Dalal Street – traditionally considered the nerve center of India’s capital. Till the day a credit officer from our Originator discovered him. As expected he had little to prove his credit worthiness. So the credit officer spent two days standing next to his little stall and counting the number of sandwiches he delivered to the BSE building from morning to evening. This was followed by a personal assessment through a Q&A session, a visit to his home and a few conversations with neighbours. Using the sandwich-movement-activity based cashflow and other observations, the credit officer built the sandwich vendor’s P&L and B/S. The vendor was given a one-year loan of INR 9 lakh. He repaid the loan in 6 months and reapplied for a larger loan, tapping into a formal source of finance for the second time in his life.

The CEO told me that when he left behind a promising career in a mainstream commercial bank and decided to get into a more interesting and possibly a higher margin business, he thought he would have to go to far flung areas of the country in search of those who had no access to credit. He was wrong. He found many such down the street from his office. I visited some of them today.

India is indeed a promising land. We simply need to look a little closer and go a little deeper into the lives of people around us – people whom we always ignored because we never thought they had potential. We need to stop looking and start seeing!


A New Approach to Funding Social Enterprises – Harvard Business Review mentions IFMR Capital’s work

A recent article in the Harvard Business Review on new approaches to funding social enterprises cites IFMR Capital’s work in securitisation and structured finance of microfinance loan portfolios. The article explores how unbundling societal benefits and financial returns can dramatically increase investment.

The authors argue that financial engineering can be a powerful force for change. It can permit the mobilization of more capital for investment than would otherwise be available. It can generate rich opportunities to fund projects that fuel economic growth and improve people’s lives.  The article also mentions that the ability of social enterprises to provide their products and services rises or falls with the availability of capital and that the lack of funding opportunities is one of the major disadvantages social enterprises face. The article offers the insight that the funding of a social enterprise can be treated as a problem of financial structuring: the enterprise can offer different risks and returns to different kinds of investors instead of delivering a blended return that holds for all investors but is acceptable to very few.

This new approach to structuring can close the financial-social return gap.  The article goes on to discuss the various types of financing-innovation in practice such as loan-guarantees, quasi-equity debt, pooling and social-impact bonds. In the context of techniques that involve pooling and creating tranches, the article mentions IFMR Capital’s work in securitising microfinance loan portfolios in which an investment share is retained by IFMR Capital. The article also reviews the lessons the financial crisis has taught us, most importantly, the importance of standards and ratings and the need for transparency.

The authors conclude by stating that the challenges involved in creating fully functioning capital markets and legal frameworks to serve social enterprises cannot be underestimated and that some innovations may not be suitable for all organisations. However, with the right market infrastructure and legal framework in place, enormous amounts of private capital could be mobilised for social enterprises.

To read the complete article, click here.


ICRA and CRISIL upgrade ratings of securities structured and arranged by IFMR Capital

ICRA and CRISIL have upgraded the ratings assigned to the Senior Pass Through Certificates (PTCs) and Assignee Payouts pertaining to three transactions backed by micro loan pool receivables originated by Grama Vidiyal Microfinance Limited (GVMFL) and two transactions backed by micro loan pool receivables – one originated by Satin Creditcare Network Ltd. and one by Janalakshmi Financial Services Private Limited respectively.

ICRA upgrades micro loan pool receivables originated by Grama Vidiyal Microfinance Limited (GVMFL)

The ratings upgrade reflects the good collection performance on the underlying pools so far, and enhanced credit enhancement cover for the rated instruments / payouts over the balance tenure.

The summary of the rating actions taken by ICRA is given below.

In case of all the three aforementioned transactions, the selected pool comprised of unsecured micro loans (less than or equal to Rs. 20,000 each), with low initial tenure of contracts (50 weeks), moderately high initial seasoning and no overdue. Moreover, the pools comprised of General Loans[2] only.

A brief performance summary for these pools is given below

As can be seen from the table above, the cumulative collection efficiency for all the above-mentioned transactions has been 100% and no delinquencies have been reported in these transactions so far. As a result, no cash collateral has been utilised in these transactions till date. The credit enhancement available in the transactions is sufficient to support the revised rating level.

CRISIL Upgrades micro loan pool receivables originated by Satin Creditcare Network Ltd

# Indicates door-to-door tenure between the issuance date and legal final maturity date; actual tenure will depend on the level of prepayments in the pool, exercise of clean-up call option, and extent of shortfalls

& The Series A1 PTCs are entitled to receive interest on a fortnightly basis. There is an expected schedule for principal repayments for the Series A1 PTCs; however the structure allows for principal payments to be made by the maturity date of the PTCs (ultimate payment structure)

* Credit support for the Series A1 PTCs includes Rs.22.7 million in the form of subordination of cash flows over and above the scheduled payouts promised to the Series A1 PTCs

$ Credit support for the principal repayment on the Series A2 PTCs includes Rs. 8.4 million of subordinated cash flows

CRISIL has upgraded its ratings on the Series A1 and Series A2 PTCs issued by Theta Pioneer IFMR Capital 2011 to ‘P1+(so)’ from ‘P2+(so)’, and to ‘P3+(so)’ from ‘P4(so)’ respectively. The PTCs are backed by microfinance loan receivables originated by Satin Creditcare Network Ltd. The upgrade is driven by strong collection performance together with low overdue level of the pool, which has led to an increase in the cover provided for the PTC payouts by the available credit collateral.

Pool Performance Summary (as per May 23, 2011 payout report)

CRISIL Upgrades micro loan pool receivables originated by Janalakshmi Financial Services Private Limited

CRISIL has upgraded its rating on Series A1 pass-through certificates (PTCs) issued by Iota Pioneer IFMR Capital 2011 to ‘P1+(so)’ from ‘P1(so)’. The PTCs are backed by microfinance loan receivables originated by Janalakshmi Financial Services Pvt Ltd (JFSPL; rated ‘BB+/Stable’ by CRISIL).

The upgrade has been driven by the underlying pool’s strong collection performance and current amortisation level, which has led to an increase in the cover available for the PTC payouts. Available cash collateral covers 52.5 per cent of the Series A1 PTCs’ payouts.


[1] 100 lakh = 1 crore = 10 million

[2] These are Group Loans given to borrowers who are organised in groups of five, where each group member is responsible for repayment by the other group members.

[3] Cumulative collections / (Cumulative billings + opening overdue at the time of securitization)  There are no opening overdue in case of any of the GVMFL pools

[4] POS  on contracts aged 0+ dpd  / POS on the pool at the time of securitisation

[5] (Pool Cashflows – Cashflows to Senior Investor – Junior Investor principal – originator’s residual share)/ Pool Principal outstanding

[6] (Pool principal outstanding – Senior investor principal outstanding) / Pool principal outstanding


The rich invest in the poor

– G E Balajee, IFMR Blog Team

The recent securitisation transaction completed by IFMR Capital was a landmark deal in the microfinance sector. It was a Rs. 108 Mn rated securitisation transaction backed by microloans originated by Grama Vidiyal Micro Finance Limited. This is not the first time that a transaction such as this has been executed by IFMR Capital. What makes this transaction special is that, this is the first time private wealth investors have invested in microfinance. In other words, this is one of the best examples of the wealth of the richest being directed towards the poorest in the country.

IFMR Capital already has some innovations in the area of securitisation to its credit. Its Multi-Originator (MOSEC) structures have focused on smaller but high quality microfinance institutions (MFIs) that deserved capital market exposure. It has also arranged the first mutual fund investment in microfinance. “We have always been on the lookout for new investor classes for our clients”, says Vineet Sukumar, who heads Origination and Treasury at IFMR Capital.

Though a lot of private investors would have liked to invest in the sector, lack of publicly available information about the MFIs has been an important reason that has kept them away. “Efforts by IFMR Capital in collecting granular data, success in transaction placement, and engagement with a strong private wealth advisor like Avendus has ensured that a good start has been made”, explains Meenal Madhukar who heads Investor Relations at IFMR Capital.

While a commercial institutional investor has the resources to verify information about a company before investing, a private wealth investor relies on, and is very sensitive to, public opinion and information released in the press. Ever since SKS IPO filed its draft red herring prospectus, the sector has been beset with negative press coverage. It is well known that bank funding to MFIs had dried up after the Andhra Pradesh (AP) ordinance. If traditional sources were apprehensive of the future of the sector, private investors were even more wary of investing in the sector.

“This investment, coming in the backdrop of the AP Ordinance and liquidity shortfall in the sector, conveys a strong message that the sector is able to diversify fund sources even at such tough times. Further, funds from such non-traditional sources are being availed at commercial rates that are well comparable with other fund sources. Separately, IFMR Capital’s success in inculcating a new investor class into the sector at this time underscores the success of our business model and strategy”, says Vineet.

So what does this do to the microfinance sector? The earlier securitisation transactions arranged by IFMR Capital have consistently helped smoothen out the seasonality of the funding pattern that is prevalent in the MFI sector, or for that matter, even in the priority sector as a whole.

“This opens up a vast opportunity for microfinance. In general, private wealth investors have higher risk-taking ability and able to invest in times when mainstream investors take a back seat. So this deal not only opens a large investor base, but also a diversification opportunity to raise funding in tougher times”, explains Meenal.

This investment by private wealth investor is expected to form the base for more High Networth Individuals (HNI) and family offices to evaluate this sector. Family offices are substantial sources of funds in today’s market. While microfinance presents a good opportunity for social investing with commercial returns, the disclosures, monitoring and transparency associated with a structure of this nature makes the transaction attractive.

Here’s hoping that this transaction helps scale up private wealth investment into microfinance.


IFMR Capital structures Rs. 108 Mn securitisation transaction

IFMR Capital recently structured and arranged a Rs. 108 million securitisation transaction – backed by 11,304 microloans originated by one of the leading MFIs in the country, Grama Vidiyal based out of Trichy. Beta IFMR CAPITAL 2011, the Special Purpose Vehicle created for the transaction, issued two tranches of securities rated by ICRA: 84% senior tranche rated A1(SO) that was subscribed to by private wealth investors and 16% subordinated junior tranche rated A3(SO) that was subscribed to by private wealth investors and IFMR Capital.

“This deal represents the largest debt investment by private wealth investors into the microfinance sector. We are happy to see the investor base expand, helping us infuse liquidity to high quality MFIs at this crucial juncture,” said Meenal Madhukar, Head – Investor Relations at IFMR Capital

Nikhil Kapadia, CEO-Wealth Management, Avendus Capital, said “We were the first wealth management firm in India to identify the opportunity in subscribing to these securitised papers, now our investor base has increased its allocations to such customized instruments and has allowed us to syndicate a full issue. Our wealth platform is based on the concept of Solutions which are structured for each client need and hence we constantly seek innovative products for each risk level”.

The structure created by IFMR Capital ensures that the incentives of the originator, servicer and structurer are aligned. This has enabled a variety of investors – banks, NBFCs, mutual funds and now private wealth investors – to provide much-needed liquidity to the sector via investment in IFMR Capital-structured transactions