ICICI Prudential Asset Management, an Indian fund manager, has invested in a securitized offering by Equitas Microfinance, an Indian microcredit lending firm based in Chennai, India.The deal is reported at INR 40 million (USD 900,000). The total securitized offering by Equitas Microfinance comes to USD 10 million and is backed by over 50,000 micro-loans. Crisil Fund Services, an Indian rating agency, has assigned a rating of P1+ (highest possible rating for short-term paper) to the issuance by Equitas Microfinance.
Mutual fund investments in micro-credit organizations have been rare. According to information reported to The Economic Times, ICICI Prudential made the investment on the basis of high ratings, strong collection performance of the underlying pool, and credit enhancement options, which partially protect against credit defaults.
“There is a credit enhancement option in securitized paper that takes care of credit defaults. Generally, investments in micro-finance companies give funds an opportunity to diversify their investments. A rated security-backed paper from a well-conducted MFI could be a good asset in fund portfolios,” said Krishnan Sitaraman, head of services at Crisil.
By Jay Kumar, Research Assistant
About Equitas Microfinance:
Equitas is a microfinance institution (MFI) that was created in December 2007 and is located in Chennai, India. According to information reported by the microfinance institution to MIX Market, as of November 2009, Equitas had a gross loan portfolio of about USD 43 million, 339,158 active borrowers, and total assets of USD 61 million. Its return on assets (ROA) was reported at 1.52 percent and return on equity (ROE) was 4.02 percent.
Additional Sources:
1.) http://economictimes.indiatimes.com/Personal-Finance/Mutual-Funds/MF-New…
2.) https://www.microcapital.org/microcapitalorg-brief-ifmr-capital-and-equit…
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