Indian microfinance institutions (MFIs), which have struggled to procure loans from commercial banks since turmoil struck the microfinance industry in Andhra Pradesh in November 2010, have found that raising money by securitizing even their higher-quality loan portfolios has become more expensive. Securitization is a process that involves the packaging of loans into marketable securities for sale to banks and other investors. According to unnamed senior industry officials quoted by Indian newspaper Mint, MFIs are now paying yields of 12 to 12.5 percent, up from 10 percent one year ago.
Sa-Dhan, an association of Indian MFIs, reports that securitization deals worth INR 1,100 crore (USD 242 million) have been completed in the last year, including transactions by SKS Microfinance, Ujjivan Financial Services, Satin Creditcare Network and Bandhan Financial Services. But the volume of securitizations is still much lower than the INR 4,000 crore (USD 888 million) that was raised in the previous fiscal year ending March 2010.
Chandra Shekhar Ghosh, managing director of Indian MFI Bandhan Financial Services, believes that, “Money is needed in this sector at the moment and there is a sizeable non-Andhra Pradesh portfolio that can be securitized to generate cash flow.” Bindu Ananth, president of Indian nonprofit IFMR Trust, expects investors like mutual funds and private wealth management firms to generate renewed interest in securitization deals, as long as the underlying assets remain sound.
By Rohan Trivedi, Research Associate
About SKS Microfinance:
SKS Microfinance is a microfinance institution (MFI) that was launched in 1998 and delivers microfinance products through a group-lending model to impoverished women in India. It is a for-profit, non-banking finance company that converted to a public limited company in May 2009 and launched an initial public offering on July 28, 2010. Equity investors include Quantum Hedge Fund, Sequoia Capital, Vinod Khosla, Small Industries Development Bank of India, Bajaj Allianz, Yatish Trading, Kismet Capital, Sandstone Capital, Silicon Valley Bank and Unitus. According to September 2010 data from the US-based nonprofit Microfinance Information Exchange (MIX), SKS reported total assets of USD 1.3 billion, a gross loan portfolio of USD 1.2 billion, approximately 6.6 million borrowers, return on assets (ROA) of 6.4 percent and return on equity (ROE) of 22.4 percent.
About Ujjivan Financial Services:
Ujjivan Financial Services is a microfinance institution (MFI) based in Bangalore, India, that offers loans and insurance. It was founded in 2004 and focuses on low-income women in urban and semi-urban areas. Its products include business loans, educational loans, emergency loans and life insurance. As of December 31, 2010, Ujjivan reported to the US-based nonprofit Microfinance Information Exchange (MIX) total assets of USD 65 million, a gross loan portfolio of USD 45 million and 246,000 active borrowers.
About Satin Creditcare Network Ltd:
Established in 1990, Satin Creditcare Network Limited is an Indian microfinance institution operating in East Dehli, Haryana, Punjab, Rajasthan, Uttaranchal and Uttar Pradesh. As of December 31, 2010, Satin reported to the US-based nonprofit Microfinance Information Exchange (MIX) total assets of USD 157 million, a gross loan portfolio of USD 138 million and 820,000 active borrowers.
About Bandhan Financial Services Private Limited:
Bandhan Financial Services Private Limited is a microfinance institution (MFI) that was founded in 2002 and is based in Kolkata, India. As of December 31, 2010, Bandhan reported to the US-based nonprofit Microfinance Information Exchange (MIX) total assets of USD 636 million, a gross loan portfolio of USD 523 million and 3 million active borrowers.
Sources and Additional Resources:
[1] Livemint.com, “MFIs lean on securitized loan market to raise funds”, http://www.livemint.com/2011/05/29225316/MFIs-lean-on-securitized-loan.html
MicroCapital.org story, May 23, 2011: “MICROCAPITAL BRIEF: To Counter Liquidity Crunch in India, Grameen Koota, Bandhan, SKS Securitize Loans Disbursed to Women”, https://www.microcapital.org/microcapital-brief-to-counter-liquidity-crunch-in-india-grameen-koota-bandhan-sks-securitize-loans-disbursed-to-women/
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.orgy story, April 7, 2011: “MICROCAPITAL BRIEF: SKS Microfinance of India Sells $135m in Securitized Loans”, https://www.microcapital.org/microcapital-brief-sks-microfinance-of-india-sells-135m-in-securitized-loans/
MicroCapital Universe Profile: SKS Microfinance, https://www.microcapital.org/microfinanceuniverse/tiki-index.php?page=SKS+Microfinance
MicroCapital Universe Profile: Ujjivan Financial Services, https://www.microcapital.org/microfinanceuniverse/tiki-index.php?page=Ujjivan+Financial+Services
MicroCapital Universe Profile: Satin Creditcare Network Ltd, https://www.microcapital.org/microfinanceuniverse/tiki-index.php?page=Satin+Creditcare+Network+Ltd
MicroCapital Universe Profile: Bandhan Financial Services Private Limited, https://www.microcapital.org/microfinanceuniverse/tiki-index.php?page=Bandhan+Financial+Services+Private+Limited
Browse the MicroCapital Universe and add your entry to the wiki at https://www.microcapital.org/microfinanceuniverse
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