In a first large scale partial guarantee program for microfinance institutions in India, Asian Development Bank has provided partial credit guarantee to loans to Microfinance Institutions (MFIs) in India.
IFMR Capital is the structurer, lead arranger and co-guarantor to the transaction. Ratnakar Bank, acting as a domestic banking partner for this facility, will provide the liquidity by extending rupee loans to MFIs in Indiabacked by the partial guarantees.
Under the structure, IFMR Capital and RBL will recommend to ADB eligible partner MFIs to avail of rupee loans which would be funded by RBL and partially co-guaranteed by ADB and IFMR Capital, the proceeds of which the MFIs would use to on-lend to end borrowers, spread over an estimated 300 districts across the footprint of their operations. IFMR Capital would provide portfolio monitoring and surveillance support to ADB and Ratnakar Bank on the underlying MFIs.
"This risk-sharing arrangement will result in scaled-up assistance to people in India currently unable to access funds, such as the poor, women, and cash-strapped micro- and small enterprises. Under the transaction, our commercial financing partners will be able to increase their lending without unduly increasing their risk," saidPhilip Erquiaga, Director General of ADB's Private Sector Operations Department.
The deal, sized at approximately INR 1.5 billion in the first round, is expected to enable financing to around 125,000 households in rural and semi urban parts of the country that have hitherto been excluded from the mainstream financial markets and would go a long way in meeting the larger objectives of financial inclusion and social empowerment in these areas. The deal also provides confidence that the Indian microfinance sector continues to display resilient performance while demonstrating sustainable and balanced growth, post the crisis that hit the sector in 2010.
"Ratnakar Bank is focused on creating a banking institution for the new India backed by strong traditional values and a high degree of professionalism. It is committed to delivering robust and cost effective banking services that promote inclusion of the unbanked and catalyse growth. This transaction demonstrates our ability and desire to create industry level structures and models that help fulfill these objectives. This partnership also reaffirms the quality processes, systems and controls being institutionalised as part of the transformation of the Bank," said Vishwavir Ahuja, MD & CEO - Ratnakar Bank.
"This program has been launched at a very appropriate stage for microfinance in India. This will not only release much needed credit to a vast number of households, but also showcase the inherent value of the microfinance sector and enabling financing from mainstream financial institutions. The deal structure also reaffirms our principles of high quality local origination (MFIs), efficient risk transmission (IFMR Capital) and risk aggregation by well capitalised investors (ADB /Ratnakar Bank)," said Dr. Kshama Fernandes, CEO, IFMR Capital.