India: SKS Microfinance in Talks with Banks to Raise Rs 100 crore (USD 20 ml)

Feb 2009
Hyderabad, India, February, 18 2009 - SKS Microfinance, the largest player by assets in the country, is in talks with a clutch of state-owned banks to raise Rs 100 crore in a credit rated securitization deal. The move will help the MFI access cheaper funds and expand its business to new geographies.

"The credit rated securitization deal which would be the first of its kind in the microfinance space. An independent agency will rate the agency based on its credit history, financial position and future income", claimed Dilli Raj, Chief Finance Officer, SKS.

Securitisation is the process of converting existing assets or future cash-flows into marketable securities. In this case, the loans are written in the books of the MFI and sold as future receivables to the bank. Normally, the MFI deposits the money collected from its clients (which are the receivables) in an escrow account and transfers it to the bank's books. The bank discounts the future receivables at a negotiated interest rate.

"A credit rated securitisation deal will give us a pricing advantage of 100-150 basis points as against a term loan. This will further reduce the cost of funds. Also rating by an independent agency assures the investors of the portfolio quality," he said.

SKS 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. Other MFIs including Spandana have used the securitization route to save on interest costs and make more efficient use of capital.

SKS has tied up with over a dozen private, multinational and state owned banks. SIDBI (is also an investor), Corporation bank, Bank of India, IDBI bank, Indian Bank and Indian Overseas bank are among public sector banks.

"We may look at securitisation deals with mutual fund and insurance companies later. Through such deals we can leverage on the existing capital and diversify the debt raising ability," said Suresh Gurumani, CEO& MD, SKS. Gurumani replaced founder Vikram Akula as CEO in November last year.

SKS, which is based on the Grameen bank model, has lent around Rs 5700 crore to over 36 lakh women poor clients. Currently SKS is present on 18 states. This year it has plans to foray into Tamilnadu with 50 branches.


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