Grameen Koota Completes Microfinance Securitization worth Rs. 31.15 Crore

Microfinance Focus, June 29, 2010: Bangalore based Non-Banking Financial Company, Grameen Financial Services (Grameen Koota) has completed Rs 31.15 crore Securitization with IFMR, a Chennai based inclusive-finance company. The securitisation transaction involved over 27,000 microloan contracts of Grameen Koota being pooled and issued as debt securities by Alpha Pioneer IFMR Capital 2010, the special purpose vehicle or SPV created for this purpose. The securities were issued in two tranches with the P1+ (so) rated senior tranche being subscribed by a large Indian mutual fund and the P4+ (so) rated subordinated piece being bought by IFMR Capital in its role of the market builder for these securities.

This is the second round of securitization by Grameen Koota and was structured and arranged by IFMR Capital, that has worked to enable funding to microfinance institutions through its Rs. 200 Cr. securitization program. The paper was issued as two-part PTCs (Pass through Certificates) rated by CRISIL. Marking the occasion, Mr .Suresh Krishna, MD Grameen Koota said, “This is the second transaction and just shows the tremendous faith that our investors have in us and in growth of Microfinance sector at large. The benefit will definitely go down to our customers as well”.

With this deal, funding facilitated by IFMR for the microfinance sector has reached about INR 3 billion. Ms Sucharita, CEO IFMR said, “Despite tight liquidity conditions, this securitization has resulted in a significant cost reduction for Grameen Koota. The steady flow of microfinance backed securities in the capital markets can be attributed to the exceptionally strong performance of rated microfinance securitizations and the resulting interest from both, a larger number and a larger variety of investors such as mutual funds and private wealth banks. IFMR Capital has been very pleased with the performance of its second loss investments in Grameen Koota and other transactions.”

Earlier in March 2010, IFMR also structured and arranged a Rs. 264.7 million securitisation transaction. The transaction was backed by 25,446 microloans originated by Grameen Koota. IFMR Capital Pioneer III, the Special Purpose Vehicle created for the transaction, issued two tranches of securities rated by Crisil. An 80% senior tranche rated AA(so) that was subscribed to by IndusInd bank and a 20% subordinated junior tranche rated BBB(so) that was invested into by IFMR Capital. Both tranches have an expected maturity of 13 months.

Grameen Koota is an NBFC registered with the Reserve Bank of India, Grameen Koota has a portfolio outstanding of Rs. 330.17 crore with a client base of more than 427,144 spread across 37 districts in Karnataka, Maharashtra and Tamil Nadu. It has recently raised its third round of equity of Rs. 27.5 Crore from Micro Ventures Funds, Italy, Aavishkaar Goodwell and Incofin (Belgium). Earlier, Grameen Koota had PE funding of Rs. 9.20 Crore from Aavishkaar Goodwell.

Securitization or portfolio sales are increasingly becoming the preferred method of fundraising by microfinance institutions in India. But the recently proposed RBI (Reserve bank of India)guidelines for securitization by NBFCs tend to restrict this popular route for MFIs. The guidelines seek to lay down a minimum holding period of 9 months before a loan could be sold out but microfinance loans have a natural tendency to get prepaid within 9-10 months as the borrower typically pays off the tail of the remaining and takes a new loan. Industry experts have expressed their concerns and are making presentations to the Central Bank to address the issue and keep the securitization route open to microfinance institutions.

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