MICROCAPITAL STORY: Indian MFI BISWA Sells $5.9mn of its Agri-Assets to Indian Private Banks

East Indian microfinance institution (MFI) Bharat Integrated Social Welfare Agency (BISWA) sold USD 5.9 million of its agricultural assets, otherwise known as agri assets. The sale was arranged by Grameen Capital India (GCI), who was also responsible for identifying a pipeline of potential purchasers among domestic, private Indian banks.

The loans included in the sale have a minimum seasoning of 3 months and a residual maturity of 12 months or less from date of purchase. BISWA also provided a First Loss deficiency Guarantee, or default guarantee, for 5 percent of the portfolio, while GCI’s investor IFMR Trust supplied a Second Loss guarantee piece for up to 45 percent of the pool. Finally, BISWA will continue to service and manage the loans.

BISWA Chairman, KC Malick, described the transaction as “a new and relatively low-cost funding source and [it] would greatly accelerate BISWA’s expansion plans.” Following the successful competition of this transaction, BISWA will also look to work with GCI to design other structured finance transactions for 2009 to tap additional sources of low cost funding.

BISWA’s agri portfolio will be sold to private sector banks in India, which will enable them to meet regulatory requirements around Priority Sector Lending. Domestic banks are required to extend 13.5 percent of their advances as direct agricultural advances. The Reserve Bank of India defines direct agricultural advances as “advances given by banks directly to farmers for agricultural purposes.” Violation of these regulations can result in financial and non-financial penalties.

For other stories on microfinance regulations in India, please see the following MicroCapital article. Also, the Reserve Bank of India’s concern on banks and MFIs meeting rural impact guidelines can also be found in the following article.

BISWA in a non-profit NGO founded in1995. It has a microloan portfolio of over USD 29.5 million and operates in 11 states, although most of its activities are concentrated in the easter region of Orissa and Chhatisgarh. According to the microfinance clearing house the MixMarket, 98 percent of its borrowers are women, and it had a ROA and ROE of 2.4 percent and 29.9 percent respectively in March of 2007.

GCI is a collaboration between the Grameen Foundation, IFMR Trust, and Citicorp Finance India Ltd. Its goal is to “catalyze microfinance growth in India, by providing investment banking and other financial products and services to the Indian microfinance sector.” For further details of GCI’s launch, please see the follow MicroCapital press release.

by Jennifer Lee

Additional Resources:

The Asian Banker: “Grameen Capital India arranges sale of agri assets of BISWA”, Grameen Capital India, April 17, 2008.

Reserve Bank of India: Home, Priority Sector Lending

BISWA: Home, MixMarket

Grameen Capital India: Home, MicroCapital Press Release

MicroCapital Story: “Standard Chartered Bank to Increase Microfinance Investment, Government Restrictions Limit Growth”, by Elizabeth Nelson, November 6, 2007.

MicroCapital Story: “Reserve Bank of India Cautions Microfinance Institutions and Banks”, June 4, 2007.