VCCircle

Securitisation helps microfinance institutions to save on interest costs and make more efficient use of capital.

Hyderabad-based SKS Microfinance and ICICI Bank have completed a securitisation deal worth Rs.200 crore which allows the bank to purchase loans extended to weaker sections. Securitisation is a structured finance process, which involves pooling and repackaging of cash flow producing financial assets into securities that are then sold to investors. SKS Microfinance had earlier raised close to Rs 400 crore through unrated securitization deals with banks including Citi Bank, ICICI Bank, IndusInd Bank, HDFC Bank, Axis Bank.

The program will deliver income-generating loans of averaging Rs.9,500 to over 2,00,000 unbanked families. In November last year SKS Microfinance raised raised Rs 366 crore or $75 million from private equity investors in the largest microfinance deal in the world. It has raised equity funding from Sandstone Capital, Sequoia Capital, Vinod Khosla, Odyssey Capital, Silicon Valley Bank and others.

Several MFI's have been using securitisation to their advantage. Spandana had secured a Rs 300 crore ($75 million) line of credit (LoC) from ICICI Bank in one of the largest securitisation deal in the microfinance space late last year. Securitization helps MFI's to save on interest costs and make more efficient use of capital.

"For the first time in the MFI history, a pool comprising receivables exclusively from the weaker sections of the society is securitised and placed with ICICI Bank. We will continue to manage these receivables for ICICI Bank through the term of these receivables," said S Dilli Raj, CFO of SKS Microfinance.

SKS Microfinance currently has a member base of 3.6 million and plans to reach 8 million clients till March 2011. It has disbursed loans worth Rs 5,788 crore and has 1,373 branches across 18 Indian states.