IFMR Trust, BISWA, and Grameen Capital India Complete First of Its Kind Microfinance Loan Portfolio Restructuring

Congrats to our friends across town and the people at Grameen Capital India for completing one of the first of its kind deals in the microfinance sector!

Coverage of the deal can be found here, but for those not familiar with terms like tenor or first loss default guarantee here is a basic overview: BISWA, an MFI in Orissa which lends to both SHGs and standard Grameen style joint liability groups, has sold the rights to the future loan repayments on a chunk of its loan portfolio. This means that in the future, BISWA will collect these repayments from their clients but then hand over the money to someone else. To make sure that BISWA still has an incentive to collect all those repayments, they have agreed to cover any gaps in repayment up to 5% of the total value of the chunk sold off (this is what’s known as the first loss default guarantee). To make the deal even sweeter for prospective buyers, IFMR Trust has guaranteed the other 95% of that portfolio.

The final portfolio, with all the guarantees attached, was sold to an undisclosed bank for an interest rate of 6% -- 1.5 percentage points lower than the current rate on government securities (and just about the rate of inflation). The reason that the bank was willing to essential provide a free loan is that all the loans in the portfolio qualify as direct agricultural financing which (as discussed below) the RBI requires banks to lend to.

Crafting deals like this are a big part of IFMR Trust’s ambitious plan to transform banking in India by rolling out a series of full-service regional banks catering to microfinance clients, typical banking clients, and everybody in between. More on this later.