By Prathiba Swaminathan, IFMR Capital
IFMR Capital recently closed its largest securitisation transaction till date, MosecTM 21. It was an INR 65 crore transaction backed by a pool of 50,000 micro loans. Six MFI originators participated in the transaction. These were Grama Vidiyal, Annapurna, Satin, Sonata, SVCL and Utkarsh.
The Special Purpose Vehicle (SPV) created for the transaction issued two tranches of PTCs – the senior rated A- (SO) and the junior rated B+ (SO). IFMR Capital structured the transaction and also subscribed to the junior tranche of PTCs. The senior PTCs were subscribed to by a bank for whom this was the first ever PTC investment. High repayment rates, low-volatility of returns and low-correlation with other asset classes make microfinance a promising asset class. Since inception, IFMR Capital has built strong networks with main-stream investors including banks, mutual funds, NBFCs and private wealth managers – new classes of investors that had hitherto not been active participants in microfinance.
In 2010, IFMR Capital pioneered the MosecTM (Multi-Originator Securitisation) model – IFMR Capital MosecTM I – It was the first multi-originator securitisation of micro-loans in the world. Since then, IFMR Capital has structured, arranged and invested in 21 MosecTM transactions providing access to nearly INR 700 crores of financing to high-quality originators serving low income households across 20 states and 250 districts.
The MosecTM Model
MosecTM is a Multi-Originator Securitisation transaction where portfolios of multiple MFIs are combined. A unique structure is then designed so as to fit the requirements of different investors from the point of view of liquidity, return, risk, tenor and ratings, and securities are issued backed by the receivables from these portfolios. The MosecTM structure allows small, high-quality originators to tap into the capital markets. Institutions providing financial services to low-income households require a steady flow of capital to expand their reach and continue providing access to reliable financial services to financially excluded households. Bank funding in India is driven by priority sector regulation and hence seasonal in nature. By pooling, structuring and rating the pooled loan portfolios of these high-quality MFIs, IFMR Capital demonstrated that these MFIs could consistently and reliably access funding at a much lower cost.
Talking about the MosecTM model, Kshama Fernandes, CEO of IFMR Capital said, “A small or medium MFI typically finds it difficult to provide a portfolio large enough to be taken to the capital markets. By pooling loans from multiple MFIs into a MosecTM structure, it is possible to reach a critical portfolio size that can then be of interest to a mainstream investor. Pooling loans from multiple MFIs spread across the length and breadth of the country also enables efficient diversification across geographies and originators, thus providing an attractive risk-return payoff for the investor.”
The MosecTM transactions are designed to ensure that incentives of all parties to the transaction are well-aligned. As a servicer, the originator contributes the first-loss in the transaction. As structurer and arranger, IFMR Capital invests in the subordinated tranche in turn signalling to investors its confidence and commitment to this asset class. Through its role as a subordinate investor, IFMR Capital has helped in creating capital markets’ appetite for investments in microfinance.