Following two months of negotiations, unnamed wholesale commercial lenders have agreed to restructure debt worth INR 5,000 crores (USD 1 billion) for five Indian microfinance institutions (MFIs): Spandana Sphoorty Financial Limited, Asmitha Microfin Limited, Future Financial Services Limited, Share Microfin Limited and Trident Microfin Private Limited. Under the terms of the corporate debt restructuring (CDR) package, MFIs will be granted a one-year moratorium on repayments and seven years to repay the principal with interest. According to senior microfinance officials interviewed by Indian online newspaper Livemint.com, the banks expects to convert some of the debt into convertible preferential shares and possibly equity, allowing them to take positions on the board of the MFIs [1]. As was reported by MicroCapital, the new loans were expected to carry interest rates of 12 percent per year [2].
The banks had originally indicated they would only restructure debt if the promoters of the MFIs were willing to provide personal guarantees pledging their entire MFI holdings to the banks in case of default. This condition has since been relaxed because most promoters are either unable or unwilling to cooperate. Only the promoters of Future Financial Services have committed to personal guarantees [1].
Although the restructuring is now expected to go through, it is unlikely that “fresh funding” will be available for MFIs, according to Ravikumar Desai, a manager at Indian credit ratings institution CARE Limited [1].
By Rohan Trivedi, Research Associate
About Spandana Sphoorty Financial Limited:
Spandana Sphoorty Financial Limited provides microcredit and “credit-plus” services to low-income households in India. The company was founded by Padmaja Reddy in 1998 and receives its funding from development finance institutions and banks. As of March 31, 2010, Spandana had a gross loan portfolio of USD 787 million, 3.7 million borrowers, return on assets (ROA) of 8.99 percent and return on equity (ROE) of 55.7 percent.
About Asmitha Microfin Limited:
Asmitha Microfin Limited is a microfinance institution (MFI) based in Hyderabad, India. It offers collateral-free group and individual loans to women. Registered as a public limited company, Asmitha was founded in 2002 and operates primarily in rural areas. According to the Microfinance Information Exchange (MIX), the US-based nonprofit provider of microfinance data, the MFI reported total assets of USD 389 million, a gross loan portfolio of USD 315 million, return on assets (ROA) of 4.3 percent, return on equity (ROE) of 40.1 percent and 1.3 million active borrowers as of March 31, 2010.
About Future Financial Services Limited:
Future Financial Services Limited (FFSL) is a microfinance institution (MFI) based in India. FFSL was established in 1996 and is currently incorporated as a non-banking financial institution (NBFI). FFSL offers a range of loan products that are aimed at low-income women and men in the Indian states of Andhra Pradesh, Karnataka and Tamil Nadu. As of March 31, 2010, FFSL had total assets of USD 63 million, a gross loan portfolio of USD 54 million, return on assets (ROA) of 7.04 percent, return on equity (ROE) of 45.77 percent and 257,000 active borrowers.
About Share Microfin Limited:
Share Microfin Limited is a microfinance institution (MFI) based in Hyderabad, India. After beginning operations in 1989 as a nonprofit, Share was converted into a non-bank financial institution (NBFI) in 2000. It offers loans—primarily to women—as well as training and consulting to microentrepreneurs. As of March 31, 2010, it has USD 577 million in assets, a gross loan portfolio of USD 490 million, 990 branches, 2.3 million active borrowers, a return on assets of 5.50 percent and return on equity of 45.2 percent.
About Trident Microfin Private Limited:
Trident Microfin Private Limited (formerly Annapurna Financial Services Private Limited) is a microfinance institution that was established in 2007 and is headquartered in Hyderabad, Andhra Pradesh, India. The goal of the company is to provide comprehensive financial and business solutions to enterprises and low-income individuals, particularly women and microenterprises, in a socially, economically and environmentally sustainable manner. Trident reported total assets of INR 1.5 billion (USD 33 million) as of June 30, 2010.
Sources and Additional Resources:
[1] Livemint.com: “Banks clear Rs 5,000 crore loan recast for five MFIs”, http://www.livemint.com/2011/06/03234027/Banks-clear-Rs-5000-crore-loa.html?d=1
[2] MicroCapital.org story, May 17, 2011: “MICROCAPITAL BRIEF: Indian Microfinance Institutions (MFIs) Spandana Sphoorty, Asmitha, Future, Share, Trident Attempt to Raise Up to $218m in New Loans Amidst Efforts to Restructure Existing Debt”, https://www.microcapital.org/12346/
MicroCapital.org story, June 6, 2011: “MICROCAPITAL BRIEF: Reserve Bank of India (RBI) Mandates Personal Guarantees from Promoters of Microfinance Institutions (MFI) Looking to Restructure Debt”, https://www.microcapital.org/microcapital-brief-reserve-bank-of-india-rbi-mandates-personal-guarantees-from-promoters-of-microfinance-institutions-mfi-looking-to-restructure-debt/
MicroCapital.org story, May 4, 2011: “MICROCAPITAL BRIEF: Wholesale Lenders Agree to Restructure Debt of Indian Microfinance Institution (MFI) Spandana Sphoorty Financial Limited”, https://www.microcapital.org/microcapital-brief-wholesale-lenders-agree-to-restructure-debt-of-indian-microfinance-institution-mfi-spandana-sphoorty-financial-limited/
MicroCapital.org story, April 21, 2011: “MICROCAPITAL BRIEF: India’s Business Standard Reports a Third of Indian Banks’ Loans to Microfinance Institutions (MFIs) in Restructuring, Which Analysts Argue is Inadequate to Solve Sector Issues”, https://www.microcapital.org/microcapital-brief-india’s-business-standard-reports-a-third-of-indian-banks’-loans-to-microfinance-institutions-mfis-in-restructuring-which-analysts-argue-is-inadequate-to-solve-s/
MicroCapital Universe Profile: Spandana Sphoorty Financial Limited, https://www.microcapital.org/microfinanceuniverse/tiki-index.php?page=Spandana+Sphoorty+Financial+Ltd
MicroCapital Universe Profile: Asmitha Microfin Limited, https://www.microcapital.org/microfinanceuniverse/tiki-index.php?page=Asmitha+Microfin+Limited
MicroCapital Universe Profile: Future Financial Services Limited, https://www.microcapital.org/microfinanceuniverse/tiki-index.php?page=Future+Financial+Services+Limited
MicroCapital Universe Profile: SHARE Microfin Limited, https://www.microcapital.org/microfinanceuniverse/tiki-index.php?page=SHARE+Microfin+Limited
MicroCapital Universe Profile: Trident Microfin Private Limited, https://www.microcapital.org/microfinanceuniverse/tiki-index.php?page=Trident+Microfin+Private+Limited
Browse the MicroCapital Universe and add your entry to the wiki at https://www.microcapital.org/microfinanceuniverse/
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