After executing its largest Multi-Originator transaction involving 7 microfinance institutions, IFMR Capital recently closed one of its largest Single Originator transactions this financial year, with one of the leading MFIs in the country, Ujjivan Financial Services.

It recently structured and arranged a Rs. 401 million securitisation transaction backed by 45,954 microloans originated by Ujjivan Financial Services. This is the sixth capital market transaction for Ujjivan and second securitisation transaction. Ujjivan has raised debt capital through issuance of listed, secured, redeemable, non-convertible debentures in the last and current financial year.

KRIOS PIONEER IFMR CAPITAL 2011, the Special Purpose Vehicle created for the transaction, has issued two tranches of securities rated by CRISIL, India’s foremost rating agency:  an 89.5% senior tranche rated CRISIL A1(So) that was subscribed to by a NBFC and a 10.5% subordinated junior tranche that was invested into by IFMR Capital. Both tranches have an expected maturity of 9 months.

The structure created by IFMR Capital ensures that the incentives of the originator, servicer and structure are aligned. While the originator and servicer, Ujjivan, provides cash collateral as first loss. The structurer, IFMR Capital, has invested in the subordinated junior tranche. The cash collateral and the subordination of payments to junior tranche in the waterfall mechanism ensures that the senior investor is protected against losses and any first loss is borne by the originator and the second loss by the structurer.

IFMR Capital recently structured and arranged two Microloan Securitisation transactions – Aether IFMR Capital 2011 involving a single originator Grameen Financial Services Private Limited (Grameen Koota) and MOSEC 7, a multi-originator securitisation transaction involving seven Non-Banking Finance Companies.

Mosec 7

On September 7 2011, IFMR Capital concluded a Rs. 511 million multi-originator microloan securitisation backed by 49,881 microloans originated by seven Non-Banking Finance Company (NBFC)-Micro Finance Institutions (MFI), namely Asirvad Microfinance Private Limited, Disha Microfin Pvt. Ltd, Mimoza Enterprises Finance Pvt. Ltd., Satin Creditcare Network Limited , Suryoday Micro Finance Pvt. Limited, SV Creditline Private Limited and Utkarsh Micro Finance Private Limited. IFMR Capital Mosec VII, the SPV, issued two tranches of securities rated by ICRA: 85% senior tranche rated A1-LBBB+ (SO) and Series A2-Unrated.

The senior tranche has been subscribed by a Bank and HNI’s and Junior Tranche by IFMR Capital.

This is the biggest Multi Originator transaction arranged and structured by IFMR Capital involving 7 high quality Originators.

The structure created by IFMR Capital ensures that the incentives of the originator, servicer and the structurer are aligned. While the originators and servicers, provides cash collateral as first loss, the structurer, IFMR Capital, has invested in the subordinated junior tranche. The cash collateral and the subordination of payments to junior tranche in the waterfall mechanism ensure that the senior investor is protected against losses and any first loss is borne by the originators and the second loss by the structurer.

Aether IFMR Capital 2011

The Rs. 239 million single-originator securitisation transaction was completed with Grameen Financial Services Private Ltd also popularly known as Grameen Koota. Aether IFMR Capital 2011, the SPV, issued two tranches of securities backed by 23,108 microloans that were originated by Grameen Koota. Non-Banking Financial Institutions subscribed to the senior ICRA A- rated tranche and IFMR Capital invested in the subordinated ICRA BB+ rated piece.

This is the eighth capital market transaction for Grameen Koota with IFMR Capital.

The originator and servicer, Grameen Koota, provides cash collateral of 10% of the pool principal, while the structurer, IFMR Capital, has invested in the subordinated junior tranche. As in the above transaction, the waterfall mechanism ensures that here, the senior investor is protected against losses up to Rs. 240 million and any first loss is borne by the originator and the second loss by the structurer.

- 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 recently completed two securitisation transactions. Eta Pioneer with Trichy based Grama Vidiyal Microfinance Limited, and Theta Pioneer with Satin Creditcare Limited.

IFMR Capital structured, arranged and invested in an INR 448.7 million securitisation transaction backed by 51,770 microloans originated by  Grama Vidiyal Microfinance Limited and in an INR 79 million securitisation transaction  transaction backed by 9,399 microloans originated by Satin Creditcare Limited.

Both the transactions were in the form of rated securitisation of receivables credit enhanced through cash collateral from the originator, EIS from pool cash flows and second loss credit enhancement from IFMR Capital. The senior tranche of Eta Pioneer has been rated LA+ (SO) and that of Theta Pioneer has been rated P2+ (SO). As always, IFMR Capital invested in the subordinated tranche.

This is IFMR Capital’s second securitisation with Grama Vidiyal Microfinance and first with Satin Microfinance as a single originator. Satin had earlier participated in three multi-originator transactions structured and arranged by IFMR Capital. Through this structure and investment by IFMR Capital, the window of funding continues to be made available for Grama Vidiyal Microfinance while for Satin Microfinance it is an important graduation from multi-originator to single originator securitisation, emphasizing the positive impact of securitisation on the efficiency of microfinance companies. IFMR Capital continues to demonstrate its commitment to providing efficient and reliable access to capital for institutions that impact low-income households

Details of the transactions (INR):

IFMR Capital closed its eighth microloan securitisation transaction this week, an INR 370 mn multi-originator securitisation with Delhi-based MFI Satin Creditcare, Rajasthan-based Sahayata Microfinance and Tamil Nadu MFI, Asirvad. This transaction is significant, because it has brought private wealth investors to microfinance for the first time and also for the much lower collateral requirements from the three MFIs compared to previous transactions.

The multi-originator securitisation structure pioneered by IFMR Capital is a win-win structure for both the MFIs and investors. By pooling the assets of three different entities, the structure increases the size of the total transaction and reduces the cost of accessing capital markets allowing even small high-quality MFIs to take the capital markets route to debt-financing. The same pooling feature provides greater diversity of assets to the investors without compromises on the asset quality, returns or size of investment.

By bringing unconventional investors like NBFCs and private wealth, IFMR Capital believes that the participating MFIs will be able to build a sound track record in debt-capital markets and be able to move beyond priority sector-led debt funding in a cost-effective way. To know more about these transactions, and us visit http://capital.ifmr.co.in.