Independent Research and Policy Advocacy

Day One at the IFMR Capital MFI Workshop

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29th April marked an extremely informative and stimulating start to this year’s MFI workshop on ‘New Sources of Financing for Microfinance Institutions’.

Representatives from a dozen MFIs gathered to understand the basics as well as deeper concepts related to raising debt funds and the new and upcoming options available to MFIs. Rather than just discussing products for debt funding, the sessions aimed at equipping participants with the tools to assess different debt funding options and choose the best for managing their requirements in the most cost-effective manner, while also diversifying their sources of funding.

The day started with a brief description of IFMR Capital and its work and how it connects institutions impacting low-income households with debt capital markets. This introductory segment was followed by Vineet Sukumar’s presentation of basics of debt finance. This session started with fundamentals such as the discounting concept and went on to compare different debt funding options comprehensively by looking at sample term sheets that clearly laid out the differences in parameters such as rating requirements, tenure, asset-liability management implications, pricing etc.

Kunal Agrawal, head of the Structured Finance team at CRISIL then took on from where Vineet had left and gave participants a very in-depth view of what constitutes securitisation and the experience in Indian and international markets. The session evoked a lot of discussion about the relative merits and benefits of SPV based securitisation transactions, putting the expert trainers to good use and certainly creating insights for everyone to take back.

The next session, again taken by Kunal, started with emphasizing that securitisation isn’t complex as it sounds and gave a piece-by-piece description of the SPV based securitisation structure (that has been followed in the microfinance securitisations till date) bringing out the role of each party – be it the originator, the servicer, the trustee, the rating agency, or the investor. The questions from the participants showed their eagerness to understand these transaction structures better, especially their role within it.

This stimulating round of questions almost logically lead to the next and last session which was a description of the securitisation structures that can be utilised- par or premium and the different types of subordination, the effects of the structure chosen on credit enhancement and protection for investors was also explained through working examples.

At the end of the day, all the participants expressed that they were eagerly looking forward to tomorrow’s sessions on the actual methodology followed in rating microloan securitisations, market feedback for these securities and the legal and regulatory issues involved. IFMR Capital also looks forward to another day of gainful knowledge sharing and discussion and takes this opportunity to thank partners ACCESS and CRISIL for their time and support.

Kirti Rao, IFMR Capital, contributed to this post.

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