Kunal described Crisil’s evaluation framework for analyzing the risks that arise in securitisation transactions and the methodology adopted by Crisil to rate the securities issued in MFI securitisation transactions. The importance of knowing their clients well and capturing material business information in formats for better analysis was rightly emphasized in this session.

Once it had been seen as to how the securities were created from the MFI’s microloan pool, how the structuring was done and rating assigned to it, the question now was how it would create value for the MFI. Meenal Madhukar, Head of Investor Relations at IFMR Capital, now, took the stage and described what the investors wanted and how MFIs were benefiting from reaching out to a larger set of investors through securitisation transactions. She again stressed on the necessity of having timely and transparent information generating systems, this time from the perspective of investors assessing microloan backed securities. She also conveyed how IFMR Capital’s underwriting, market building through underwriting and building infrastructure (such as the pricing and structuring framework) plus new initiatives like the Deal Portal was helping to establish microfinance as a mainstream asset class.

Abhijeet Roy from Crisil then took the participants through the rating rationale of a live microfinance securitisation – an exercise that helped them put their learning to use and see applications of the concepts discussed till then. With their queries about how to optimize the structure and how different operational realities would reflect upon the rating, the MFI participants made it a valuable session for everyone including the trainers who got a deeper insight into the needs of MFIs and what still needed to be done (for instance, a query was raised about whether investment into the PTCs should be treated as financial income or investment income).

Kartikeya Singh, IFMR Capital’s chief legal counsel, took the last and much awaited session on legal and regulatory issues related to fundraising. After discussing the legal and regulatory parameters within which securitisation transactions take place, Kartikeya also took the participants through regulatory requirements pertaining to other sources of debt finance such as NCDs.

The day ended with a short recap of the two days of the workshop and the MFIs receiving certificates from Crisil acknowledging the participants’ contribution to making this knowledge sharing exercise a great success. We thank all the MFIs that participated and hope that this will be the cornerstone of their growth through sustainable and efficient access to debt capital markets, the benefits of which they would pass on to their clients who hold the key to inclusive growth in India.

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Kirthi Rao, IFMR Capital, contributed to this post.

Representatives from a dozen MFIs gathered to understand the basics as well as deeper concepts related to raising debt funds and the new and upcoming options available to MFIs. Rather than just discussing products for debt funding, the sessions aimed at equipping participants with the tools to assess different debt funding options and choose the best for managing their requirements in the most cost-effective manner, while also diversifying their sources of funding.

The day started with a brief description of IFMR Capital and its work and how it connects institutions impacting low-income households with debt capital markets. This introductory segment was followed by Vineet Sukumar’s presentation of basics of debt finance. This session started with fundamentals such as the discounting concept and went on to compare different debt funding options comprehensively by looking at sample term sheets that clearly laid out the differences in parameters such as rating requirements, tenure, asset-liability management implications, pricing etc.

Kunal Agrawal, head of the Structured Finance team at CRISIL then took on from where Vineet had left and gave participants a very in-depth view of what constitutes securitisation and the experience in Indian and international markets. The session evoked a lot of discussion about the relative merits and benefits of SPV based securitisation transactions, putting the expert trainers to good use and certainly creating insights for everyone to take back.

The next session, again taken by Kunal, started with emphasizing that securitisation isn’t complex as it sounds and gave a piece-by-piece description of the SPV based securitisation structure (that has been followed in the microfinance securitisations till date) bringing out the role of each party – be it the originator, the servicer, the trustee, the rating agency, or the investor. The questions from the participants showed their eagerness to understand these transaction structures better, especially their role within it.

This stimulating round of questions almost logically lead to the next and last session which was a description of the securitisation structures that can be utilised- par or premium and the different types of subordination, the effects of the structure chosen on credit enhancement and protection for investors was also explained through working examples.

At the end of the day, all the participants expressed that they were eagerly looking forward to tomorrow’s sessions on the actual methodology followed in rating microloan securitisations, market feedback for these securities and the legal and regulatory issues involved. IFMR Capital also looks forward to another day of gainful knowledge sharing and discussion and takes this opportunity to thank partners ACCESS and CRISIL for their time and support.

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Kirti Rao, IFMR Capital, contributed to this post.

She divided the session into five broad aspects: Motivation—importance and relevance of data on measuring access to finance; measuring approaches; the underlying concepts on access to finance; headline and core Indicators; and sources of data on access to finance in India.

Measuring access to financial services is of vital significance. While addressing this issue, Amy emphasized the importance of data at addressing policy issues and evaluating impact of access within and across countries. In this context, she highlighted some of the pertinent questions that need to be addressed to impact the specific and unique needs of the poor. Some of the questions that she elaborated included how access to finance is important to the poor and who are excluded, which type of financial services should be available for maximum impact on poverty alleviation, what services are most important for them and what challenges they face while seeking them.

Amy at the workshop

Currently, while data exists on the broad benefits of financial access, there is a dearth of data on the effect of access to financial services on particular population groups, such as the poor.  This is largely because  data collection is very time consuming and expensive, apart from the lack of clarity of the underlying concepts.

When measuring access, Amy discussed the need for both supply and demand side data. We can use supplier data (regulator surveys and bank surveys) and user data (enterprise survey and household survey) for this purpose. For example, regulator surveys (such as RBI surveys) provide reliable data, though with some limitations such as non-coverage of the informal sector. User data can be sourced from village level surveys, household surveys and enterprise surveys. While discussing the issue of generalizing data from one location in India, Amy acknowledged that while rich data are available (such as from the Centre for Monitoring the Indian Economy) they cannot be generalized.

While enlisting good quality data sources, Amy mentioned The Centre for Monitoring Indian Economy (CMIE), National Council of Applied Economic Research (NCAER), and National Sample Survey Organisation (NSSO) in India and Finscope survey, British Household Panel Survey and DFID’s Young Lives Programme (on childhood poverty) outside India.

Amy also shared some of methods and processes used for data collection in her research, which is a 15-year study on understanding the impact of access to financial services in the urban and rural areas in Tamil Nadu. Started three years ago, her study covered 10,000 households – half of them in the rural areas. Highlighting the elaborate and time-consuming process involved in data collection, she pointed to her intensive research surveys that took an average of eight hours to survey each household.

While discussing the core and headline indicators, she described the four-fold classification of population groups in her survey:

• Banked – households that have access to bank services
• Formally included –  households that have access to banks, formal institutions and other financial institutions
• Financially served – households that have access to banks, other formal institutions as well as informal sources (informal sources do not include borrowing from family and friends)
• Financially excluded – individuals who do not fall under any of the three aforementioned categories

On the issue of generalizing the results of her study in Tamil Nadu, it was pointed out that it was possible primarily because of the large sample size that takes care to cover sufficiently diversified population groups in the rural and urban areas in India.

Amy concluded by highlighting the importance of data collection in the context of evolving financial services in India, and stressed the need to raise the bar in data collection, and effective use of the data collected.

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Anita Sharma and Natalie Colatosti of IFMR Advocacy contributed to this post.

Students screened a documentary made on micro-credit based on Grameen Bank, Bangladesh, and a presentation on Joint Liability Group Loans and Self-Help Group – Bank Linkages that are the two major models of micro-credit in India. Participants actively involved themselves in the discussions making the sessions very lively.

Nitin who spoke at the workshop made a distinction between micro-credit and microfinance in terms of both products and utility to customers. He explained, given that the function of finance is to move resources across time, space and states, micro-credit would help customers to only move resources from future to the present time, while the customer would still have to find ways to move resources from current to future, or from location to location or from a time of normal activity to a crisis etc. In terms of products these functionalities would be called Savings, Investments, Remittances and Insurance, which along with Loans make up microfinance.

He emphasized that access to finance is a state of mind and has been known to significantly impact the decision-making process of a household and also its risk taking ability.

Highlighting that in India, roughly 70% of the population lives in sparsely populated rural habitations and despite the efforts of the banking sector in spreading branch networks over the past 4 decades, only 40% of the population has bank accounts, a majority of which are of people who live in densely populated urban locations; he stressed the urgent requirement in providing the rest of the population with Savings, Investments, Remittances and Insurance products. While MFIs have been active over the past decade, and have succeeded in reaching a large number of unbanked population, their intervention has been largely restricted to one product – the Joint Liability Group Loan, he felt.

He summed up his talk by stressing the need for innovation in design of a channel that provides reliable, convenient, flexible and continuous access to finance, which would meet the complete financial needs of the household thus spurring rural development.

The workshop kicked off with a presentation by Stuart Rutherford on his book “The Poor and Their Money”.  He explained the different patterns that are emerging in relation to savings, also, about the role of a promoter and a provider; he laid stress on the fact that being poor does not mean that they are without any personal preferences.

Abhishek Sinha from EKO shared his insights on handling small value transactions for SBI and the usage of mobile technology. Later the MicroSave team presented their research from the market on what the poor need.

In the afternoon session, Stuart started a discussion about his book “Portfolios of the Poor”, which Anil S.G. from IFMR Trust followed up with a session explaining the KGFS model, the logic behind it and the way it has been implemented.

Next day, the participants were divided into 3 groups and they all headed to 3 different branches of Pudhuaaru KGFS (Alakudi, Pudhupatti & Kallaperambur) on a field visit.  Each group visited 2 branches just to understand and experience in person what was presented on the previous day.

Field visit to Pudhupatti branch

They were all pleasantly surprised to see the uniformity with which the branches were looking and the implementation of products and processes at the visited branches. The participants had lots of queries on different aspects that were answered, and appreciated the fact that KGFS had variety and scale.

On the final day of the workshop, Stuart shared his perspective explaining the competition amongst various MFIs in Bangladesh and how it has affected the clients. Also he was able to give a broader picture on the savings habit displayed by the clients in Bangladesh where certain MFIs savings portfolio were more than their asset portfolio.

Graham A.N. Wright from MicroSave continued by explaining the differentiation amongst big MFIs in Bangladesh. Amongst them, ASA and BRAC worked on 2 different models  – The benefits of having multiple products of BRAC & the price reliability of ASA was discussed.

Later in the day Venkatesh from Equitas and Suresh Krishna from Grameen Financial Services talked about the emerging competitive scenario in India.

Bindu wrapped up the event by pointing out that high volume and market share can deteriorate the process quality and customer focus and clearly emphasized that the challenge is not in getting the market share but to maintain the process quality and customer centric approach. She stressed that usage of technology will be one of the key differentiators in order to have control on operational and financial realities.

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Gurunath, CEO, Pudhuaaru KGFS, contributed to this post.

On the 8th and 9th of February 2010, Access Microfinance Alliance (AmFA), one of the largest small MFI networks in India, organized ‘ACCESS INVEST’, an investor readiness workshop for its members. The workshop saw participation of 25 participants from around 20 MFIs from the eastern region of India.

Bhagirath Iyer, member of the IFMR Capital origination team, was invited to describe different sources of fund-raising to the MFI participants.  He spoke about the newer sources of fund-raising like Non-Convertible Debentures and Securitisation for high-quality MFIs sharing IFMR Capital’s experience of structuring, arranging and investing in three path-breaking MFI securitisation transactions. The session sparked tremendous interest and some of the NGO MFIs present were keen to know more about the process and whether the avenue will be open to them.

Seeing the overwhelming interest generated, AmFA is keen that IFMR Capital shares its experiences at such Investor Readiness workshops to be held across India in the future.

Looking forward Indian Microfinance today is looking at more efficient and reliable sources of funding than bank lending driven by priority sector lending requirements. IFMR Capital expects that interactions such as these will educate more high quality MFIs, whether small or medium; NBFCs or NGOs on the benefits of accessing the capital markets for debt funding.

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Kirti Rao from IFMR Capital contributed to this post.
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