India: Spandana Gets $75 m Credit Line from ICICI

Nov 2008
Hyderabad-Mumbai, India, November, 28 2008 - Spandana, the country’s second largest micro-finance institution (MFI) by assets, has secured a Rs 300 crore ($75 million) line of credit from ICICI Bank in what is being touted as the largest securitisation deal in the microfinance space.

It is also in talks with HDFC Bank for another such structured deal for around Rs 150 crore. The move is expected to help the MFI absorb the burden of rising interest costs, diversify its ability to raise more debt and make better use of capital.

“Apart from the transaction with ICICI Bank, we have in-principle sanctions and commitments for securitisation on hand from different leading banks for over Rs 1,050 crore,” said YV Shiv Narain vice-president, finance, Spandana.

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 ICICI Bank. The MFI deposits the money collected from its clients (which are the receivables) in an escrow account and transfers it to the books of ICICI Bank. The bank discounts the future receivables at an interest of 12.5%.

Spandana, which lends money to low-income groups, has raised funds through such structured deals for over a decade now. The MFI has tied up with two dozen banks for funding and the list includes ICICI Bank, HDFC Bank, Indian Overseas Bank and HSBC, among others.

“We have used around Rs 200 crore out of the Rs 300 crore raised from ICICI Bank. We plan to use the balance Rs 100 crore before the end of this fiscal,” he said. ICICI Bank, however, declined to comment on the deal.

An official spokesperson said “the bank has been extending credit to a large number of microfinance institutions in the past and will continue to do so. It is not our policy to comment on specific deals.” With capital becoming scarce, Spandana’s incremental interest costs have risen by around 200 basis points.

It now pays an annual interest of around 14% on loans from banks as compared to 12% it paid nearly six months ago. “But we have not passed on the burden to borrowers, as our operating costs are significantly lower than the industry average,” said Shiv Narain.

Source : Economic Times

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