MICROCAPITAL BRIEF: IFMR Capital of India Launches Collateral Bond Obligation (CBO) Backed by $16m in Non-convertible Debentures (NCDs) Issued by Microfinance Institutions (MFIs)

IFMR Capital, a Chennai-based financial institution that facilitates funding for organizations that serve low-income individuals in India, has launched a collateralized bond obligation (CBO), which it deems the country’s first. With a total value of INR 980 million (USD 16.3 million), the non-convertible debentures (NCDs) that back this CBO are issued by the following Indian organizations all of which are issuing NCDs for the first time: Annapurna Microfinance, a microfinance institution (MFI) located in the state of Orissa; Asirvad Microfinance, an MFI located in the state of Tamil Nadu; Arohan Financial Services, an MFI located in the state of West Bengal; Disha Microfin, an MFI located in the state of Gujarat; Future Financial Services, an MFI located in the state of Karnataka; India School Finance Company, a non-banking finance company (NBFC) based in the city of Delhi that provides loans to schools in India; Intrepid Finance and Leasing, a NBFC based in the state of Maharashtra; Pahal Financial Services, a financial services company located in Gujarat; Suryoday Microfinance, an MFI based in Maharashtra; SV Credit Line, an MFI located in the state of Haryana; and Svasti Microfinance, an MFI based in Maharashtra.

IFMR’s CBO is a bond that has been created through securitization and is backed by NCDs as a form of collateral. NCDs are medium- to long-term debt instruments that cannot be converted into shares or equities. The pooling of these NCDs creates risk diversification, and therefore the CBO’s credit rating is above the risk rating of the issuing MFIs.

According to a statement attributed to Ms Kshama Fernandes, the CEO of IFMR Capital, “this transaction is an illustration of our efforts in developing scalable structures for meeting the requirements of our clients and investors”[1]. She reportedly also pointed out that “the diversification, credit enhancement and IFMR Capital’s participation ensured that a large number of our clients could issue bonds for the very first time”[1].

IFMR Capital is a subsidiary of IFMR Trust, which is an affiliate of the Indian nonprofit Institute for Financial Management and Research (IFMR). As of 2013, IFMR reported assets of INR 1.8 billion (USD 34 million).

By Alíz Crowley, Research Associate

About IFMR Capital

IFMR Capital, a subsidiary of IFMR Trust, is an Indian non-banking financial company that aims to provide liquidity and debt capital to the microfinance industry and other sectors that offer products and services for low-income households. IFMR Trust is an affiliate of the Indian nonprofit Institute for Financial Management and Research (IFMR), a research and educational institution. As of 2013, IFMR reported assets of INR 1.8 billion (USD 34 million).

Sources and Additional Resources

[1] The Times of India, IFMR Launches Country’s First Collateral Bond Deal

[2] IFMR Website, In a First, IFMR Capital Lists Securitised Debt on the BSE

MicroCapital, June 24, 2014, IFMR of India Receives Approval to Launch “FImpact Investment Fund”

MicroCapital, April 7, 2014, LeapFrog Invests $29m in Equity in Institute for Financial Management and Research (IFMR) Capital of India

MicroCapital, January 22, 2013, India’s IFMR Capital Pools Loan Assets from 8 Microfinance Institutions, For Trading on Bombay Stock Exchange

MicroCapital Universe Profile: IFMR Capital

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