The recent securitisation transaction completed by IFMR Capital was a landmark deal in the microfinance sector. It was a Rs. 108 Mn rated securitisation transaction backed by microloans originated by Grama Vidiyal Micro Finance Limited. This is not the first time that a transaction such as this has been executed by IFMR Capital. What makes this transaction special is that, this is the first time private wealth investors have invested in microfinance. In other words, this is one of the best examples of the wealth of the richest being directed towards the poorest in the country.
IFMR Capital already has some innovations in the area of securitisation to its credit. Its Multi-Originator (MOSEC) structures have focused on smaller but high quality microfinance institutions (MFIs) that deserved capital market exposure. It has also arranged the first mutual fund investment in microfinance. “We have always been on the lookout for new investor classes for our clients”, says Vineet Sukumar, who heads Origination and Treasury at IFMR Capital.
Though a lot of private investors would have liked to invest in the sector, lack of publicly available information about the MFIs has been an important reason that has kept them away. “Efforts by IFMR Capital in collecting granular data, success in transaction placement, and engagement with a strong private wealth advisor like Avendus has ensured that a good start has been made”, explains Meenal Madhukar who heads Investor Relations at IFMR Capital.
While a commercial institutional investor has the resources to verify information about a company before investing, a private wealth investor relies on, and is very sensitive to, public opinion and information released in the press. Ever since SKS IPO filed its draft red herring prospectus, the sector has been beset with negative press coverage. It is well known that bank funding to MFIs had dried up after the Andhra Pradesh (AP) ordinance. If traditional sources were apprehensive of the future of the sector, private investors were even more wary of investing in the sector.
“This investment, coming in the backdrop of the AP Ordinance and liquidity shortfall in the sector, conveys a strong message that the sector is able to diversify fund sources even at such tough times. Further, funds from such non-traditional sources are being availed at commercial rates that are well comparable with other fund sources. Separately, IFMR Capital’s success in inculcating a new investor class into the sector at this time underscores the success of our business model and strategy”, says Vineet.
So what does this do to the microfinance sector? The earlier securitisation transactions arranged by IFMR Capital have consistently helped smoothen out the seasonality of the funding pattern that is prevalent in the MFI sector, or for that matter, even in the priority sector as a whole.
“This opens up a vast opportunity for microfinance. In general, private wealth investors have higher risk-taking ability and able to invest in times when mainstream investors take a back seat. So this deal not only opens a large investor base, but also a diversification opportunity to raise funding in tougher times”, explains Meenal.
This investment by private wealth investor is expected to form the base for more High Networth Individuals (HNI) and family offices to evaluate this sector. Family offices are substantial sources of funds in today’s market. While microfinance presents a good opportunity for social investing with commercial returns, the disclosures, monitoring and transparency associated with a structure of this nature makes the transaction attractive.
Here’s hoping that this transaction helps scale up private wealth investment into microfinance.