Non-convertible debentures (NCD) are turning out to be a favourable debt instrument for microfinance institutions (MFIs), with many of the big companies hoping to close deals by the end of the year.
West Bengal-based Bandhan, India's largest microfinance provider in terms of loan disbursements, is planning to raise nearly Rs 100 crore via NCDs in the current financial year.
"This will help us expand operations in newer geographies. By December, we will cross five million lenders mark," said Chandra Shekhar Ghosh, chairman and managing director of Bandhan.
At present, Bandhan has 4,862,117 borrowers with loan outstanding of Rs 7,674 crore, spread over 20 states and accounting for 22 per cent of the MFI market in the country.
"It is a good market for NCDs. At present, ECB (external commercial borrowing) is not an attractive option due to several factors, which makes NCDs very attractive. Many MFIs are in the process of raising funds through NCD," said Abhijit Ray, co-founder and director of Unitus Capital.
Earlier, the Reserve Bank of India (RBI) had allowed MFIs to draw external commercial borrowings of up to $10 million. However, not many MFIs have been keen to raise funds through ECB due to currency fluctuation and the cap on funding. On the other hand, debt through NCD does not have any minimum tenure and are financed in rupees, making them a better option over ECBs for MFIs.
In September this year, Ujjivan Financial Services, had raised Rs 50 crore of debt capital through NCDs, subscribed by Oikocredit, an international cooperative and social investor.
Term loans from banks and financial institutions have always constituted over 90 per cent of loans by MFIs with debt financing constituting 10 per cent. In recent years, the other forms of debt financing have slowly found their way into the debt profile of banks and this share has been steadily expanding. The total funding raised by MFIs between 2009 and 2013 through NCD was approximately Rs 550 crore, according to Ujjivan's website.
