SKS Microfinance, the country’s largest micro-lender, said it had securitised microfinance loans worth Rs 610 crore with some banks and a non-banking finance corporation (NBFC). The transactions will improve the company’s liquidity and allow it to opt out of a debt recast programme suggested by its lenders.
SKS sold Rs 550-crore loans to banks in two transactions, which were rated PR1+(SO) by CARE Ratings. Instruments with PR1+(SO) rating carry the lowest credit risk.
In addition, the company sold Rs 60 crore worth of loans to an NBFC earlier this month.
The securitised loans sold to banks were of receivables from 750,000 micro-borrowers in 18 states, excluding Andhra Pradesh.
“The pool is well diversified, with a single branch accounting for less than one per cent of the pool,” SKS said in a statement. The average loan size is estimated at Rs 12,000.
Typically in a securitisation transaction, a microfinance institution (MFI) sells rated loans to investors including banks and NBFCs, to help them meet priority sector commitments. Mutual funds also invest in paper floated for securitisation for attractive returns.
However, MFI loan securitisation was halted after the government of Andhra Pradesh introduced a new law in October, which affected the profitability of micro-lenders.
It was alleged that MFIs charge a high rate of interest to poor borrowers and use coercive methods for loan recovery.This prompted the Andhra Pradesh government to introduce regulations that stipulated MFIs register with the project director of the district rural development agency. The state government also barred MFIs from collecting their dues weekly.
This raised concerns over the quality of MFI loans and prevented securitisation of such loans.
“In keeping with its leadership role, SKS Microfinance is delighted to bring back the securitisation of microfinance receivables, which had virtually ceased, post the Andhra Pradesh MFI Act,” SKS Chief Financial Officer, Dilli Raj said.
According to senior officials at SKS, these transactions will also improve its liquidity and allow it to opt out of the proposed debt restructuring programme. The company had earlier said it was not keen to take part in a loan recast.
Banks had approached the Reserve Bank of India, seeking its approval to extend the debt restructuring programme for microfinance companies beyond March. The move was aimed at protecting their profitability, without making additional provisions on these loans.
