A recent article published by the Microfinance Focus website commented on the growing tendency of Indian microfinance institutions (MFIs) to raise funds via non-convertible debentures (NCDs). NCDs are a type of debt instrument that is issued for a fixed maturity and which cannot be converted into equity.
According to the article, “the country’s first ever listed MFI’s non-convertible debentures issue was by Hyderabad-based SKS Microfinance that had raised INR 75 crore [USD 16.4 million] by one year NCD at a coupon rate of 10 per cent in May 2009.” In June, Spandana Sphoorty Financial Ltd, another Indian MFI, raised INR 80 crore (USD 17.5 million) by issuing one-year NCDs. MicroCapital previously reported on the SKS and Spandana transactions, which were both listed on the Bombay Stock Exchange (BSE) and placed with Standard Chartered Bank. The article states that more MFIs, including Grama Vidiyal Micro Finance Limited (GVMFL), are looking to follow suit.
NCDs have allowed MFIs to diversify their fund base as the cost of funding from banks and other financial institutions has increased to over 10 percent. Furthermore, they are attractive to investors as they typically offer higher returns than fixed deposits. They are, however, still exposed to corporate risk.
By: Stefanie Rubin, Research Assistant
About SKS Microfinance:
SKS Microfinance was founded in India in 1998. In 2005, it transformed into a for-profit non-banking financial company (NBFC). As of September 2009, SKS had 3.5 million active borrowers and 1,676 branches, compared with 771 in March of 2008. According to the MIX Market, the microfinance information clearinghouse, its total assets as of 2008 were USD 596.2 million, with a return on assets of 3.68 percent and return on equity of 18.72 percent. SKS products include: income generating loans, mid-term loans, individual loans, loan cover insurance and health insurance.
About Spandana Sphoorty Financial Ltd:
Spandana Sphoorty Financial Services Limited is a microfinance institution (MFI) based in India. It was founded in 1997 as a non-governmental organization (NGO) and is now a non-bank financial company. It offers loans, insurance, and fund transfer services.
About Standard Chartered Bank:
Standard Chartered was formed in 1969 through a merger of two banks: The Standard Bank of British South Africa, founded in 1863, and the Chartered Bank of India, Australia and China, founded in 1853. The bank has over 1,600 branches in over 70 countries. Since the 1990’s, Standard Chartered has focused on developing its franchises in Asia, Africa and the Middle East.
As of 2008, Standard Chartered had extended USD 385 million in loans to 52 microfinance institutions, with an average loan size of USD 7 million.
Additional Resources:
Source Article: Microfinance Focus: Fundraising via NCD Route Grips Indian Microfinance Sector: http://www.microfinancefocus.com/news/2010/01/04/fundraising-via-ncd-route-grips-indian-microfinance-sector-2/
MICROCAPITAL STORY: SKS Microfinance Raises Rs. 75 Crore (USD 15.8 million) Debt and Lists Bonds on Bombay Stock Exchange: https://www.microcapital.org/microcapital-story-sks-microfinance-raises-rs-75-crore-usd-158-million-debt-and-lists-bonds-on-bombay-stock-exchange/
MICROCAPITAL STORY: Spandana Sphoorty Financial Ltd. Issues INR 800 million (USD 17 million) One-year 10 Percent Bonds in Deal Arranged by Standard Chartered Bank: https://www.microcapital.org/microcapital-story-spandana-sphoorty-financial-ltd-issues-inr-800-million-usd-17-million-one-year-10-percent-bonds-in-deal-arranged-by-standard-chartered-bank/
MicroCapital Universe: SKS Microfinance: https://www.microcapital.org/microfinanceuniverse/tiki-index.php?page=SKS+Microfinance
MicroCapital Universe: Spandana Sphoorty Financial Services Ltd: https://www.microcapital.org/microfinanceuniverse/tiki-index.php?page=Spandana+Sphoorty+Innovative+Financial+Services+Limited
MicroCapital Universe: Standard Chartered PLC: https://www.microcapital.org/microfinanceuniverse/tiki-index.php?page=Standard+Chartered+PLC
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