SKS Microfinance, the largest microfinance player in the country in terms of assets, is looking beyond pure bank funding for their business. It is set to raise Rs 500 crore through a variety of rated debt products to fund loan demands of its customers.
“We will raise funds through credit rated capital market products. These include issuance of non convertible debentures (NCDs) and commercial papers as well as securitisation of receivables,” Dilli Raj, Chief Finance Officer, SKS Microfinance told ET. The company had raised about Rs 150 crore through this route last fiscal.
Many microfinance companies are tapping such funding routes, especially after the global credit crunch. “We are able to negotiate rates 100 – 150 basis points lower than a bank loan. Raising funds through these routes gives us a pricing advantage. It also opens up more investor avenues like foreign institutional investors, mutual funds and insurance companies,” said Raj.
The NBFC had raised loans about Rs 3,700 crore in FY09. This fiscal, the incremental debt borrowing is projected at about Rs 5,000 crore.
Of the Rs 500 crore it plans to raise, the company has already raised about Rs 75 crore last month through issuance of NCDs. These were subscribed by the Standard Chartered Bank India. A non-convertible debenture is issued for a fixed maturity, normally a year, and cannot be converted into equity.
On the other hand, by issuing a commercial paper the institution issues a promissory note for a short maturity period, about 90 days. The MFI also plans to raise funds through securitization where in it can convert existing assets or future cash-flows into marketable securities. In this case, the loans are written in the books of the MFI and sold as future receivables to the bank.
“These funds will be used to meet the increasing demands of a customer. For instance, if a customer was given loan of Rs.10, 000 initially, she will need Rs.12, 000 next to expand her business,” said M R Rao, Chief Operating Officer, SKS.
The Hyderabad based company has adopted the Bangladeshi Grameen bank model and reached out 42 lakh borrowers. The existing market for the micro credit demand is about Rs.3, 00,000 crore where all microfinance institutions could meet only one tenth of the market.