Having covered the fundamentals of debt finance and the basics of securitisation and securitisation structures as well as the roles of the different parties to the transaction on the first day, Day 2 of the workshop on ‘New Sources of Financing for Microfinance Institutions’ began with a session by Kunal Agrawal, Head of the Structured Finance team at CRISIL.
Kunal described Crisil’s evaluation framework for analyzing the risks that arise in securitisation transactions and the methodology adopted by Crisil to rate the securities issued in MFI securitisation transactions. The importance of knowing their clients well and capturing material business information in formats for better analysis was rightly emphasized in this session.
Once it had been seen as to how the securities were created from the MFI’s microloan pool, how the structuring was done and rating assigned to it, the question now was how it would create value for the MFI. Meenal Madhukar, Head of Investor Relations at IFMR Capital, now, took the stage and described what the investors wanted and how MFIs were benefiting from reaching out to a larger set of investors through securitisation transactions. She again stressed on the necessity of having timely and transparent information generating systems, this time from the perspective of investors assessing microloan backed securities. She also conveyed how IFMR Capital’s underwriting, market building through underwriting and building infrastructure (such as the pricing and structuring framework) plus new initiatives like the Deal Portal was helping to establish microfinance as a mainstream asset class.
Abhijeet Roy from Crisil then took the participants through the rating rationale of a live microfinance securitisation – an exercise that helped them put their learning to use and see applications of the concepts discussed till then. With their queries about how to optimize the structure and how different operational realities would reflect upon the rating, the MFI participants made it a valuable session for everyone including the trainers who got a deeper insight into the needs of MFIs and what still needed to be done (for instance, a query was raised about whether investment into the PTCs should be treated as financial income or investment income).
Kartikeya Singh, IFMR Capital’s chief legal counsel, took the last and much awaited session on legal and regulatory issues related to fundraising. After discussing the legal and regulatory parameters within which securitisation transactions take place, Kartikeya also took the participants through regulatory requirements pertaining to other sources of debt finance such as NCDs.
The day ended with a short recap of the two days of the workshop and the MFIs receiving certificates from Crisil acknowledging the participants’ contribution to making this knowledge sharing exercise a great success. We thank all the MFIs that participated and hope that this will be the cornerstone of their growth through sustainable and efficient access to debt capital markets, the benefits of which they would pass on to their clients who hold the key to inclusive growth in India.
Kirthi Rao, IFMR Capital, contributed to this post.