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Lending to the poor is now big biz for the rich….Ahona Ghosh
High Yield,Safety Tag Make Securitised Microfin Loan A Big Hit A5,000-microfinance loan to a carpenter for livelihood is becoming an asset class for men who move around in Mercedes.The highest yield among fixed-income instruments is drawing many millionaires that can enrich them and also keep the lending to poor going.
Securitisation of loans to small selfhelp groups that started a few months ago,is beginning to open a window of riches for those who get 8% or 9% on investments in bonds and other fixed income yielding instruments.
Nikhil Kapadia,chief executive at Avendus Wealth Management,a unit of financial services firm Avendus Capital,convinced some of his wealthy clients to buy into securitised microfinance loans backed by Pass Through Certificates.Avendus has invested 15 crore in the instrument on behalf of clients and it may just be the beginning.
Fixed income investors have very little opportunity to private funds which will give them a higher rate of return between 11% and 14 %, says Mr Kapadia.Investors are starved of high returns because of the deliberate central bank policy to keep rates low after the credit crisis in 2008.This has forced many to look for other opportunities.While corporate fixed deposits offer around 10-12 % for up to three years,their ability to repay is being doubted.With the microfinance recovery at more than 98% on average,investors seem to be convinced about the safety of these loans.Wealthy investors are those who have $1 million in investible surplus,other than real estate.
Avendus is talking to a few more clients and offering this as part of their product portfolio, says Meenal Madhukar,general manager of IFMR Capital which structured this loan securitisation.They are looking at MFI as an asset class,a first of its kind.
Asirwad MFI,Sahayata MFI Private and Satin Credit Care Network are the three institutions that tied-up with IFMR Capital for the transaction.
These securities have two tranches,one senior and the other junior.The senior tranche of 80% has a P1+ rating from CRISIL,indicating highest safety.The remaining 20% goes into the junior tranche with a lesser rating.
We rate MFI securitisation like any other sector where we look at the track record of the pool and originators, says Pawan Agarwal,directorratings at CRISIL.Our ratings are based on historical data on the sector and our estimate of losses and delinquencies of the portfolio. While the rating companies may have provided safety tag to these papers,there are worries since there is very little collateral on these loans,leaving little scope for recovery in the event of a default.
There is a higher perceived risk for investors in pass through certificates by microfinance institutions because unlike an auto or mortgage loan where the underlying security is the car or the home,here there is no collateral, says Sashi Krishnan,chief investment officer at Bajaj Allianz Life Insurance.
But the worries may be exaggerated given that it is still at a nascent stage and it would take years for the instrument to be looked at with suspicion.Furthermore,the originators put their money where the mouth is.
In fact,IFMR Capital does not invest in the senior tranches,but the supposedly risky junior ones.
We typically invest 20-30 % in the junior tranche and if we are putting out money into it ourselves then it proves to others that its a solid investment chance for them too, says Mr Madhukar.While the first steps have been taken to sell this security to wealthy ones,it remains to be seen whether it becomes a trend.Since investments by the rich are in big numbers,micro investing may still be only a minor portion of their overall portfolio.
There is a market for this at an institutional level but we have to wait and evaluate this at the HNI level.Avendus deal is a first in India, says Somak Ghosh,group president-corporate finance and development banking at Yes Bank.
NEW SAFE HAVEN
* Investors are starved of high returns because of the deliberate central bank policy to keep rates low after the credit crisis in 2008
* This has forced many to look for other opportunities.While corporate fixed deposits offer 10-12 % for up to three years,their ability to repay is being doubted
* With the microfinance recovery at over 98% on an average,investors seem to be convinced about the safety of these loans
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