MICROCAPITAL STORY: SKS Microfinance, Share Microfin, and Equitas Microfinance Collaborate with Yes Bank to Securitize a Series of Micro-loans in India that Cumulatively Amount to USD 38.3 Million.

According to S. Dilli Raj, CFO of SKS Microfinance, the first securitized deal by an Indian MFI has received the highest rating (P1+SO; very strong safety) by CRISIL (A Standard & Poor`s company). CRISIL assigned a very strong safety review based on an analysis of over 1 million loans that were extended by SKS Microfinance Private Limited. Also, the series of recent transactions concluded allows YES Bank to purchase 14,850 micro loans that have been extended to unbanked and minority families as identified by the Reserve Bank of India (RBI) as “weaker sections” The transactions covers roughly 400,000 micro loan borrowers (average loan size USD 178 dollars) and spans across three microfinance institutions (MFIs).

The pool of micro-loans is estimated to have a net seasoning of 6.5 weeks and is geographically diversified across more than 10 states. Yes Bank has stated that “the default rate on these types of loans have been less than 2 percent due to the strength of the creditworthiness of the underlying assets.” Furthermore, the bank intends to structure and issue additional similar rated paper by 2010.

Total transactions that YES Bank recently concluded cumulatively amount to USD 38.3 million. A full breakdown of the recent transactions with YES Bank are as follows:

Rated Loan Assignment originated by SKS Microfinance Private Limited with highest possible rating of P1+ (SO) by CRISIL – USD 17.2 million
Rated senior tranche Pass Through Certificates (PTC’s) backed by loans originated by Equitas Microfinance India Private Limited rated AA (SO) by CRISIL
Rated Loan Assignment originated by Share Microfin Limited rated A2+(SO) by ICRA (A Moody’s Investor Services Company) – USD 8.6 million
Rated Non Convertible Debentures and Commercial Paper issued by SKS Microfinance Private Limited – USD 10 million

MicroCapital reported on March 24, 2009 that as the microfinance sector in India begins to unwind, additional microfinance institutions (MFIs) in the region are increasingly looking towards securitization as a method for off-balance sheet financing for capital relief. Additionally, as a timeframe for a global recovery proves to be uncertain and the rapid growth in India appears to be slowing down, the long-term outlook for microfinance in the region is largely positive.

In 2007 India grew by 79 percent in terms of value of loans outstanding. Raman Uberoi, Senior Director of India’s ratings agency, CRISIL, reported to The Hindu Business Line that “as MFIs grow they need to look at alternate sources of funding for the better MFIs, with strong asset quality, no high delinquencies and a strong underlying cash flow, the loans are pretty amenable to being structured and sold. It enables them to tap sources beyond bank lending and equity, which is what we have seen so far.”

According to the Mix Market, SKS Microfinance (founded in 1997) grew in 2008 by 300 percent. The portfolio as of March 2008 is at USD 64 million with a 99.97 percent on-time repayment rate. Currently regulated, SKS has provided roughly 600,000 loans to women clients in India valued at USD 170 million. The company has over 275 branches operating in 11 states in India. The percentage of operations comprised by microfinance is at 91 percent. The number of personnel is listed at 6,425 employees with the number of active borrowers estimated at 1,629,474 customers. The average loan balance per borrower is USD 161 dollars with 100 percent of the loans being women borrowers. SKS Microfinance’s Gross Loan Portfolio (GLP) as of March 31, 2008 was reported at USD 261.7 million with GLP to Total Assets at 77.7 percent. Return on Equity (ROE) is at 11.95 percent. Portfolio at Risk (PAR >30) is 0.15 percent and the Risk coverage Ratio is at 398.4 percent.

As of March 31, 2008 recent data provided by the Mix Market reported Equitas Microfinance India’s GLP at USD 4.2 million. The company was established in 2007 and is regulated. GLP to Total Assets for Equitas is at 86.78 percent with 100 percent of the loans being women borrowers. The number of active borrowers is estimated at 16,166 customers. The average loan balance per borrower is USD 258 dollars while the number of personnel is listed at 101 employees.

SHARE Microfin Limited as of March 31, 2008 had customers numbering around 990 thousand borrowers with an average loan size of USD 153 dollars. The Capital to Asset Ratio was at 15.7 percent with GLP to Total Assets at 80 percent. The GLP was listed at USD 151.7 million. Return on Equity as of March 2008 is at 8.3 percent and Loan Loss Provision ratio reported to be at 8.9 percent. In regards to risk, PAR >30 is reported to be 3.7 percent.

According to Udaia Kumar, Founder of SHARE Microfin Limited in India, the company currently has more than 1.8 million clients spread over 16 States in India and has made a total disbursement of USD 1 billion with an outstanding portfolio of USD 220 thousand. Mr Udaia Kumar also added that SHARE has plans to reach out to more than 15 million clients in 20 States with a total disbursement of USD 7.9 billion in the next four years.

By Zoran Stanisljevic

Additional Resources:

Trading Markets, March 2009 Yes Bank’s first-time financial solutions for MFIs

IRIS, April 2009: SKS Microfinance concludes Rs 1 bn securitization deal with Yes Bank

WEBINDIA123.com, April 2009: SKS Microfinance receives safety rating from CRISIL

MicroCapital Story, March 2009: India’s microfinance sector softens while Indian MFIs Turn to Securitizing Loans to Raise Funds

The MIX Market: SKS Microfinance Private Ltd Profile, Equitas Microfinance India Profile, Share Microfin Ltd,

CRISIL Ratings: Homepage

Equitas Microfinance: Homepage

Reserve Bank of India (RBI) Homepage

Share Microfin: Homepage

SKS Microfinance: Homepage