Microfinance institutions (MFIs) in India are reportedly securitizing more of the loans they disburse to women in order to raise capital they would likely have borrowed from banks before the liquidity crunch that has affected the microfinance sector since late 2010. Securitization is the practice of pooling contractual debt and selling it as bonds or securities to raise cash from investors who receive principal and interest payments over the course of the loan term. Despite the drop in inflows from commercial banks and private equity investors, more than a dozen securitizations reportedly have taken place over the past two months. Mr Paul Thomas, managing director of Evangelical Social Action Forum (ESAF), an NGO that lends to self-help groups in India, argues that female borrowers are less likely to default on their loans: “Repayment rates are as high as 99.5 percent among women borrowers.” Indian MFIs that have recently issued securitized debt include Grameen Koota, Bandhan Microfinance and SKS Microfinance, each of which report 65 percent to 76 percent of their portfolios comprise securitized loans to women.
By Jacqueline Foelster, Research Associate
About Grameen Koota: Grameen Koota, founded in 1999 as a division of Grameen Financial Services Private Limited, is a microfinance institution (MFI) based in Bangalore, India. Grameen Koota began with funding from Grameen Trust, an India-based non-governmental organization that supports microfinance globally through funding, training and technical assistance. Grameen Koota provides credit to low-income households through 117 branches in the Indian states of Karnataka and Maharashtra. As of March 2010 Grameen Koota reports total assets of USD 68.1 million, a gross loan portfolio of USD 52.1 million, return on assets of 0.40 percent and return on equity of 2.56 percent.
About Bandhan Microfinance: Bandhan Financial Services Private Limited is a microfinance institution (MFI) based in Kolkata, India that was founded in 2002. As of 2011, it operates approximately 1,550 branches in 18 states in India. It offers microenterprise loans as well as loans for individuals to pay for health emergencies. According to the US-based nonprofit Microfinance Information Exchange (MIX), Bandhan Financial Services reported total assets of USD 424 million, a gross loan portfolio of USD 333 million, 2.3 million active borrowers, return on equity of 38.2 percent and return on assets of 3.52 percent in 2009.
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 2010 data from the US-based nonprofit data provider Microfinance Information Exchange (MIX), SKS Microfinance reported total assets of USD 1.2 billion, a gross loan portfolio of USD 1.2 billion, approximately 6.6 million borrowers, return on assets of 6.3 percent and return on equity of 22.4 percent.
Source and Additional Resources:
[1] The Economic Times, “Microfinance institutions use women cluster loans to raise capital”, http://articles.economictimes.indiatimes.com/2011-05-03/news/29499559_1_securitisation-deals-sks-microfinance-grameen-koota
MicroCapital.org Brief, May 3, 2011, “Women Lose Out as Moneylenders Regain Ground From Indian Microfinance Institutions (MFIs) Pinched by Liquidity Crunch”, https://www.microcapital.org/microcapital-brief-women-lose-out-as-moneylenders-regain-ground-from-indian-microfinance-institutions-mfis-pinched-by-liquidity-crunch/
MicroCapital.org Brief, August 31, 2010, “Daniel Rozas and Vinod Kothari Weigh in on Risks of Microfinance Securitization”, https://www.microcapital.org/microcapital-brief-daniel-rozas-and-vinod-kothari-weigh-in-on-risks-of-microfinance-securitization/
MicroCapital.org Brief, July 12, 2010, “Reserve Bank of India Proposes Regulation for Securitizations by Microfinance Institutions”, https://www.microcapital.org/microcapital-brief-reserve-bank-of-india-proposes-regulation-for-securitizations-by-microfinance-institutions/
MicroCapital.org Brief, October 1, 2010, “Avendus Capital of India Invests $8.25m in Securitized Microloans”, https://www.microcapital.org/microcapital-brief-avendus-capital-of-india-invests-8-25m-in-securitized-microloans/
MicroCapital.org Brief, January 20, 2010, “IFMR Capital Structures $6.5m Securitization of Microloans Originated by Four Microfinance Institutions in India”, https://www.microcapital.org/microcapital-brief-ifmr-capital-structures-65m-securitization-of-microloans-originated-by-four-microfinance-institutions-in-india/
MicroCapital Universe Profile: Grameen Koota, https://www.microcapital.org/microfinanceuniverse/tiki-index.php?page=Grameen+Koota
MicroCapital Universe Profile: Bandhan Microfinance, https://www.microcapital.org/microfinanceuniverse/tiki-index.php?page=Bandhan+Microfinance
MicroCapital Universe Profile: SKS Microfinance, https://www.microcapital.org/microfinanceuniverse/tiki-index.php?page=SKS+Microfinance
Browse the MicroCapital Universe and add your entry to the wiki at https://www.microcapital.org/microfinanceuniverse/
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