SKS Microfinance, an Indian microfinance institution (MFI), reportedly has announced its first microfinance securitization of INR 2 billion (USD 36.4 million) since the Reserve Bank of India (RBI), the country’s central banking authority, revised the guidelines for securitizations issued by non-banking finance companies (NBFCs) in August 2012. The new regulations require that NBFCs hold loans for a minimum of three months before securitizing them and that the institution retain five percent of the book value of the loans being securitized.
The transaction involves SKS selling receivables from microloans disbursed to approximately 260,000 microenterprises in 14 Indian states, with “pass through” certificates having been purchased by an unnamed public-sector bank in India. CARE Ratings, an Indian credit rating agency, assigned a rating of A+(SO) to the securitization, indicating the highest level of safety.
According to a statement attributed to SKS Chief Financial Officer S. Dilli Raj, “the present transaction generates liquidity of INR 200 crore [USD 36.4 million] for SKS Microfinance and also brings in the concomitant capital relief.”
As of September 30, 2012, SKS reports a gross loan portfolio of USD 249 million disbursed to approximately 3.9 million borrowers. As of year-end 2011, SKS reported return on assets (ROA) of -49.85 percent and return on equity (ROE) of -125.51 percent. SKS does not accept deposits.
By Charlotte Newman, Research Associate
About SKS Microfinance
SKS Microfinance is a for-profit microfinance institution (MFI) that was launched in 1998. SKS converted into a public limited company in May 2009 and launched an initial public offering on July 28, 2010. It since recently diversified into offering gold loans and loans to small stores. Its 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. SKS currently trades on the Bombay Stock Exchange. As of September 30, 2012, SKS reports a gross loan portfolio of USD 249 million disbursed to approximately 3.9 million borrowers. As of year-end 2011, SKS reported return on assets (ROA) of -49.85 percent and return on equity (ROE) of -125.51 percent. SKS does not accept deposits.
About Reserve Bank of India
Established in 1935, the Reserve Bank of India (RBI) undertakes consolidated supervision of the financial sector comprising commercial banks, financial institutions and non-banking finance companies (NFBCs). The current focus of RBI is to supervise financial institutions, consolidate accounting standards, resolve legal issues in cases of banking fraud, monitor non-performing assets and supervise the rating model for the banking sector. In 1979, the National Bank for Agriculture and Rural Development (NABARD) was formed at the behest of RBI to provide regulatory oversight to regional rural banks (RRBs) and to promote the development of agricultural lenders: tasks that had been the responsibility of RBI. While non-banking financial companies such as for-profit microfinance institutions operate under RBI regulations, the responsibility for inspecting agricultural lenders, RRBs, state cooperative banks, district central cooperative banks and state cooperative agricultural and rural development banks was transferred to NABARD. RBI maintains these responsibilities for for-profit MFIs. Although RBI was originally the parent organization of NABARD and until October 2010 held a 72.5 percent stake in the outfit, RBI owns a one-percent stake in NABARD as of 2011. RBI’s reserves stood at USD 302 billion at the end of 2011.
Sources and Additional Resources:
RTT News: “SKS Microfinance Announces First Microfinance Securitization of Rs. 200 Cr.,” http://www.rttnews.com/1998518/sks-microfinance-announces-first-microfinance-securitization-of-rs-200-cr.aspx?type=bn&utm_source=google&utm_campaign=sitemap
Rural Bank of India: “Revisions to the Guidelines on Securitisation Transactions,” http://rbidocs.rbi.org.in/rdocs/notification/PDFs/C170RG21082012.pdf
MicroCapital.org story, October 4, 2012, “MICROCAPITAL BRIEF: SKS Microfinance of India Posts Portfolio Growth of 21% Outside Andhra Pradesh; Royal Bank of Scotland, Morgan Stanley Asia Purchase Stakes as Deutsche Securities Mauritius Cashes Out,” https://www.microcapital.org/microcapital-brief-sks-microfinance-of-india-posts-portfolio-growth-of-21-outside-andhra-pradesh-royal-bank-of-scotland-morgan-stanley-asia-purchase-stakes-as-deutsche-bank-cashes-out/
MicroCapital.org story, March 23, 2012, “MICROCAPITAL BRIEF: India’s SKS Microfinance Completes Securitization Deal Totaling $63m,” https://www.microcapital.org/microcapital-brief-indias-sks-microfinance-completes-securitization-deal-totaling-63m/
MicroCapital Universe Profile: SKS Microfinance
http://microcapital.org/microfinanceuniverse/tiki-index.php?page=SKS+Microfinance
MicroCapital Universe Profile: Reserve Bank of India
http://microcapital.org/microfinanceuniverse/tiki-index.php?page=Reserve+Bank+of+India+%28RBI%29
MicroCapital Universe Profile: CARE Ratings
http://microcapital.org/microfinanceuniverse/tiki-index.php?page=CARE+ratings
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