Securitization portfolio of Indian microfinance industry plummets in Q3 due to note ban

Tuesday, February 21, 2017

Mumbai: The cash-intensive microfinance industry’s securitisation portfolio plummeted in the quarter ended December because of demonetisation, according to a report released on Thursday by Microfinance Institutions Network (MFIN).

Microfinance companies raised merely Rs.726 crore through the sale of asset-backed securities in the third quarter compared to Rs.3,498 crore in the September quarter. Rs.1830 crore was securitized in the third quarter last year.

Securitisation is a process under which a lender bundles loans together and sell them to another financial institution, freeing up capital. The risk of the loan is transferred to the buyer in the process. Financial institutions such as banks buy these portfolios in order to meet their priority sector lending norms.

Loan pools can be securitized two ways—direct assignment or through issuing pass-through certificates (PTC). Direct assignment involves directly transferring a bunch of loans to the buyer. In a PTC, the certificates are issued through a special purpose vehicle (SPV) and could carry an implicit guarantee by the SPV.

“Securitisation volumes have reduced for microfinance segment on account of the impact of demonetisation. We are already seeing a pickup in Direct Assignments. PTC volumes may take some more time to pick up as investors (like mutual funds) wait for collections trends to stabilize,” said Krishnan Sitaraman, senior director, financial sector ratings and structured finance ratings, at Crisil Ratings.

Source: LiveMint (link opens in a new window)

financial inclusion, fintech, microfinance