Microfinance Summit Presentation - IFMR Capital

Debt Finance Techniques forMFIs and Agri-CommoditiesMicrofinance & Sustainable Development Summit
January 27, 2010

Outline
About IFMR Capital
3 Cases
Equitas micro-loan securitisation (IFMR Trust Pioneer II)
Multi-originator micro-loan securitisation (IFMR Capital MOSEC I)
Commodity-backed warehouse receipt financing

IFMR Capital
Mission
“To provide efficient and reliable access to capital
for every institution that impacts low-income households”
IFMR Capital is an Indian non-banking finance company (NBFC) functioning as a financial guarantee company, setup in 2008.
Sectors of focus include:
Microfinance
Agri-commodity backed finance (pilot)
Small enterprise finance (pilot)
Part of IFMR Trust, based in Chennai, India
IFMR Rural Finance (Regional rural financial institutions)
IFMR Mezzanine Co. (Mezz finance for MFIs)
IFMR Ventures (Incubates & invests in rural supply chain companies)

Financial System Design

Our Role in Transactions
Pre-purchase
Market intelligence
Due diligence of MFIs based on Underwriting Guidelines
Evaluation of portfolio to be purchased
Structuring the transaction
Modeling expected cashflows
Legal due diligence
Working with the rating agency
Negotiations with the investors
Finalisation of transaction structure
Providing second loss credit enhancement
Post-purchase
Continuous follow-up on underlying portfolio with originator
Market-making in securities issued

Case IIFMR Trust Pioneer IIFacilitating a mutual fund investment into micro-loan backed securities

IFMR Trust Pioneer II 1st Mutual fund investment
Context
No deposits or external debt for NBFC-MFIs
Regulatory driven lending (seasonal, concentrated)
Indian mutual funds: seeking short term assets
Securitization: how to promote healthy structures?
Aim
To establish microfinance as a high quality asset class
Demonstrate a P1+ rating for a micro-loan backed securitization
Legal form: Tradable security
Widen sources of finance for MFIs to key capital markets investors such as mutual funds and bank treasuries
Set a new pricing benchmark for microfinance securitizations
Promote structures that are capital efficient (Par vs premium)
Establish market standards for evaluating the credit quality of micro-loan portfolios originated by MFIs

IFMR Trust Pioneer II – November 2009
IFMR Trust Pioneer II

Structure
P1+
65% of Pool
$7 MM
Investors
Equitas (MFI) sells 55,993 micro-loans
ICICI-Prudential AMC, Dhanalakshmi Bank
1
SPV buys loans and issues PTCs (securities)
3
Axis Bank
AA
17% of Pool
$1.8 MM
2
CRISIL (S&P) rates securities
BBB
18% of Pool
$1.9 MM
IFMR Capital,
Axis Bank
Cash Collateral
10.6% of Pool
Equitas (MFI) bears first loss risk

Time Tranching
Accessing <1 yr portion of yield curve improved pricing benchmark
Commercial paper rated P1+ yielded approx 5-6% at time of deal

Case IIIFMR Capital MOSEC IFacilitating access to capital markets for small MFIs

IFMR Capital MOSEC I 1st Multi-originator securitisation
Context
500+ small & medium sized MFIs (100 million unbanked households)
Indian banks have consolidated lending to largest 10-20 MFIs
Cost of borrowing avg 12-15%
Small MFIs lack sizeable unencumbered portfolio for securitization
Revolver securitization structure not captured by RBI guidelines

Loan-to-Originate Product
After due diligence, if a small MFI meets Underwriting Guidelines & Eligibility Criteria, IFMR Capital provides short-term liquidity (2-4 month loans) for MFIs to originate portfolio
Portfolio can then be pooled with other small MFIs’ portfolios and securitized
-The unencumbered portion of their portfolios is minimal
-IFMR Capital issued line of approx $1 MM to each MFI to make fresh loans
IFMR Capital MOSEC I

IFMR Capital MOSEC I – Summary, January 2010

Structure
P1+
76% of Pool
$5.2 MM
Investors
Asirvad
Sahayata
Sonata
Satin
Dhanalakshmi Bank
1
SPV buys loans and issues PTCs (securities)
3
Unrated
24% of Pool
$1.6 MM
IFMR Capital
2
CRISIL (S&P) rates securities
Cash Collateral
13% of Pool
All 4 MFIs bear first loss risk

Case IIIAgri-Terminal Markets Network EnterpriseFacilitating access to markets & credit for small farmers

Farmers’ Dilemma
Farmers want price upside:
Prices are the lowest at harvest time.
Solution:
Warehouse receipt financing
Farmers also need liquidity:
A need for cash today leads to forced selling at low prices.
Solution:
Local access to commodity exchanges & end buyers
Farmers need market access:
Local mandi & middlemen offer low prices vs national exchanges

Access to markets

Access to risk management tools

Access to commodity market and credit
Finance partner for loans
ATMNE Branch
Clearing & Trading member of NSEL
Nat’l Spot Exchange
4. Provide cash / loan
3. Sell or Lodge w/h receipt
Farmer / Trader
1. Deposits Commodity
IFMR Rural Finance or MFI
Warehouse / 3rd party Collateral Manager
2. Issue warehouse receipt
A choice to farmer to sell spot or to hold for future

ATM NE: Dharampur Village, Gujarat

Way forward
Sharing of ground level experience and technical expertise learned in pilot
Replication through partnerships with MFIs, NGOs and Cooperative societies.
ATMNE will provide trading and settlement backend to partners
Exploring ways to accredit warehouses for storage of commodities in rural areas and taking grading, sorting and packaging services close to farmers
Short distance commodity transportation pilots to facilitate farm to market as well as inter-markets movement
Transportation exchange to enhance the scope of trade on electronic exchanges

Peter Bremberg
Peter.bremberg@ifmr.co.in
Team Email
capital@ifmr.co.in
Website: www.ifmrcapital.com
Blog: www.ifmrblog.com
1, Cenotaph Road | Teynampet | Chennai - 18
www.ifmrcapital.com

Product and Market DevelopmentPricing and Evaluation Framework
Perception of due diligence team
Evaluation based on benchmarks
Scoring is on a 5-point scale: 0, 5, 10, 15 & 20 across each of the above sections.

Product and Market DevelopmentPricing and Evaluation Framework

Click next to see an ATMNE Video

Farmer Education

Trading Platform

Quality Testing of Groundnuts

http://ifmrblog.com	55
http://www.slideshare.net	10
http://www.ifmr.co.in	2
http://feeds.feedburner.com	1

Microfinance Summit Presentation - IFMR Capital

by IFMR on Feb 03, 2010

Accessibility

Categories

Tags

Upload Details

Usage Rights

4 Embeds 68

Statistics

Microfinance Summit Presentation - IFMR Capital — Presentation Transcript