IFMR Capital partners with Asian Development Bank to structure first of its kind large scale partial guarantee program for MFIs in India

In a first of its kind large scale partial guarantee program for microfinance institutions in India, Asian Development Bank (“ADB”) has provided partial credit guarantee to loans to Microfinance Institutions (MFIs) in India. IFMR Capital is the lead arranger, structurer and co-guarantor to the transaction. Ratnakar Bank (“RBL”), acting as a domestic banking partner for this facility will extend rupee loans to MFIs in India backed by the partial guarantees.

The guarantees are a part of the Microfinance Risk Participation program of ADB’s Microfinance Development Strategy. INR 5 billion has been carved out for IFMR Capital as part of this program. The Risk Participation program was first approved by ADB in December 2010, with the objective of partnering with financial institutions that actively lend to MFIs in ADB’s developing member countries. The current round of financing is expected to help MFIs expand their outreach by on-lending to borrowers spread over an estimated 300 districts in India across the footprint of their operations.

Under the program framework, IFMR Capital will recommend eligible MFIs to ADB using its own internal due diligence standards and will also provide subsequent portfolio monitoring and surveillance support to ADB on the underlying MFIs. As a co-guarantor under the facility, IFMR Capital’s incentives are aligned with that of ADB and Ratnakar Bank in ensuring the long term success and sustainability of the program.

While the overall size of the program with IFMR Capital is around INR 5 billion, the first round, sized at approximately INR 1.5 billion is expected to enable financing to around 125,000 households in rural and semi-urban parts of the country that have hitherto been excluded from the mainstream financial markets and will go a long way in meeting the larger objectives of financial inclusion and social empowerment in these areas. The programme will be extended to other mainstream banks and financial institutions in the coming months; this will provide the much needed financing to microfinance institutions under the overall INR 5 billion risk participation programme.

IFMR Capital is the first financial institution that ADB has partnered with under this program. This partnership with ADB is recognition of IFMR Capital’s sector expertise, its ability to identify high quality originators and provide regular risk monitoring & surveillance support to ADB through the course of the 5 year program.

“This program has been launched at a very appropriate stage for microfinance in India. This will not only release much needed credit to a vast number of households, but also showcase the inherent value of the microfinance sector and enabling financing from mainstream financial institutions. The deal structure also reaffirms our principles of high quality local origination (MFIs), efficient risk transmission (IFMR Capital) and risk aggregation by well capitalised investors (ADB /Ratnakar Bank)” said Dr. Kshama Fernandes, CEO, IFMR Capital.