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MUMBAI: In an anxious bid to improve cash flows, microfinance firms which are in stress have come into a huddle and are planning to create a common pool of assets for doing securitization deals with banks.
The common pool, essentially by smaller MFIs, is aimed at creating economies of scale and making it easier for banks to buy it.
Bigger MFIs such CreditAccess Grameen and a few others are likely to contribute to the pool.
The plan was vetted at a lenders meet organised by Microfinance Institution Network (MFIN) for its members who are facing stress in the absence of fresh funding from banks and non-banks amid the tight liquidity condition, two people in the know said.
"It's important to be standing together," said Udaya Kumar, president of MFIN.
"We are trying to create a pool of portfolio of small MFIs as fast as possible, perhaps within next 2/3 weeks so that the stress in the system is addressed soon.
Larger MFIs have also agreed to contribute to the pool voluntarily so that the rating and marketability of the pool improves," said he, who is also the managing director of CreditAccess Grameen, one of the biggest MFIs.
Securitisation is a process of pooling loan receivables and selling their related cash flows to third party investors as securities.
This frees up capital which can be used for fresh lending.
While India’s largest MFI Bharat Financial Inclusion raised Rs 840 crore in last week of September through securitisation, the smaller ones do not have the bandwidth or size to use this instrument.
“There is always a first.
Pooling of assets can be a way of funding for them in the future too,” Kumar said.
The MFI-lenders meet on Thursday aimed at building confidence on the MFI sector.
About 30 lenders attended the meeting, sources in the know said.
"The asset duration for most MFIs is longer than the duration of their liabilities resulting in a positive asset liability profile.
The current liquidity shortfall is more likely to impact portfolio growth, rather than cause concerns on meeting debt obligations," said Kshama Fernandes, CEO at Northern Arc Capital, which structures and invests in MFI debt.
Every non-banking finance company facing liquidity tightness is resorting to securitisation to improve cash flows.
State Bank of India said that it would support NBFCs by buying good quality assets worth Rs 45000 crore from them.
"Investors prefer structured finance and credit enhanced products over plan vanilla exposures on NBFCs or NBFC-MFIs," Fernandes said.
