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

 

- 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 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

IFMR Capital recently structured and arranged a Rs. 173 million securitisation transaction. The transaction is backed by 21,170 microloans originated by one of the leading MFIs in the country, Ujjivan Financial Services. This is the third capital market transaction for Ujjivan and first securitisation transaction. Ujjivan has raised debt capital through issuance of listed, secured, redeemable, non-convertible debentures in the last financial year.

OMEGA PIONEER IFMR CAPITAL 2011, the Special Purpose Vehicle created for the transaction, has issued two tranches of securities rated by ICRA, India’s foremost rating agency:  an 91% senior tranche rated LBBB+(so) that was subscribed to by Ratnakar Bank and a 9% subordinated junior tranche rated LBB(so) that was invested into by IFMR Capital. Both tranches have an expected maturity of 9 months.

Kshama Fernandes, the CRO of IFMR Capital said, “We are pleased to start a relationship with Ujjivan, a high quality originator. The deal affirms IFMR Capital’s commitment to the microfinance sector. Creating marketability of these assets to a broader universe of investors has expanded access to capital for micro-finance institutions”.

S.B. Mukherji, Chief General Manager, Agri. & Financial Inclusion Group, Ratnakar Bank said “Financial Inclusion is one of the cornerstones of Ratnakar Bank’s Vision and it will be executed through multiple business models, directly from our branches and through high quality partner institutions like Ujjivan and IFMR”

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 of 10% of the pool principal, 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 has recently structured, arranged and invested in two more securitisation transactions Lamdba Pioneer and Sigma2 Pioneer with two different MFIs. The Rs. 188.23 Mn Lambda Pioneer transaction, completed with Trichy based Grama Vidiyal Microfinance Limited, was in the nature of Pass Through Certificates (PTC) credit enhanced through cash collateral from the originator and second loss credit enhancement from IFMR Capital.

The other transaction, Sigma 2 Pioneer, was completed with Grameen Koota for an amount of Rs. 175.75 Mn, the nature of the transaction being assignment of receivables credit enhanced through Cash Collateral from Originator and Second Loss Credit Enhancement from IFMR Capital.

Details of the transactions