Loans in the books of MFIs will be consolidated in one pool and offered for sale to banks, which will buy MFI portfolios. In general, banks buy such pools through bilateral or one-on-one deals, to meet their priority sector lending targets.
According to a senior official in the MicroFinance Institutions Network (MFIN), about 70 per cent of the proposed pool will comprise the loan books of small and medium-sized entities. Participation from bigger and stronger MFIs will support the pool, as it will provide buyers the comfort of a good rating. MFIN is looking to complete the process in the next 10-15 days, said sources.
Most securitisation deals in the sector take place in the final quarter of a financial year, as banks need to meet their yearly target of giving at least 40 per cent of adjusted net credit to the priority sector. Lending to MFIs comes under priority sector lending. Under the deal, the loan is transferred from the books of MFIs to those of banks but monitoring of the loans is still done by the MFIs.
The liquidity problem at small and mid-size MFIs has been on for a while and some are having to stop new lending. According to rough estimates, at least Rs 5 billion is needed by these small and medium-sized MFIs in the next quarter. Over the past month, on average, the cost of funds at MFIs has gone up by 25-100 basis points.
NBFCs and MFIs account for about a third, or Rs 449 billion, of the country's micro-lending market, according to MFIN data. The size of the micro-finance sector is a little below Rs 1,500 billion, it is estimated.