MFIs on fund-raising spree as demand picks up, NCDs in June quarter raise Rs 800 crore

MUMBAI: Industrial activity may not be setting a blazing pace yet as the country comes out of a three-year slowdown, but the economy in Bharat seems to be picking up the pieces. Fund raising by lower-rated micro finance companies has trebled through non-convertible debentures (NCDs) in the June quarter to around Rs 800 crore as demand for funds in rural India has increased. With these papers yielding as high as 12-14%, mutual funds and non-banking finance companies (NBFCs) have lapped them up. Volume of such NCDs was at Rs 250 crore during the same time a year ago, shows data from IFMR Capital, a non-banking finance company, which facilitates such loans. “Mutual funds and other capital market investors have seen value in investing in these papers for multiple reasons, including asset diversification and higher spreads,” said Kshama Fernandes, managing director and CEO of IFMR Capital. “Issuers have all had significant credit and performance history on their borrowings from banks and other investors, which has lent confidence to capital market investors.”

In the past one year, many micro finance institutions (MFIs) have seen rating upgrades by one or two notches to investment grades starting from BBB (negative). As many as 23-25 MFIs raised funds in tranches ranging from Rs 25 crore to Rs 400 crore. Equitas Micro, JanalakshmiFinancial Services, Satin Creditcare Network, Utkarsh Microfinance, Ujjivan Financial and Grameen Financial are some of them. Securities are typically of 18-36 months maturities offering anything between 9.70% and 14%. For the first time, Satin Creditcare launched a floating rate bond linked to State Bank of India’s base rate, below which banks cannot lend. “Investor confidence has come back into the microfinance sector in a big way,” said Roystone Braganza, CEO, Grameen Capital India, an arm of global Grameen family, inspired by Nobel Laureate Professor Muhammad Yunus. “With many regulatory measures, people now see a clearcut road map for the MFI sector.” Close to 20 MFIs have applied for the Reserve Bank of India’s (RBI) small bank licence out of total 72 applicants. A few years ago, RBI created a separate category called MFI-NBFC.

For the year ended March 31, aggregate gross MFI loans (excluding some bad loans in Andhra) expanded 61% to Rs 40,138 crore, according to an industry data. MFIs’ balance sheets have grown substantially over the past 18-24 months since the Andhra crisis. “This has enhanced their ability to seek out alternate channels of funding,” said Alok Prasad, who just ended his term as CEO of Microfinance Institutions Network. “Given the industry’s growth trajectory, diversification of funding sources is an important step towards mitigation of refinance risk.”

MFIs have now managed to capitalise themselves well with a better asset quality, said a fund manager from a large fund house. Mutual funds are mostly investing in dedicated credit-oriented debt schemes, where funds are deployed on high-yielding debt securities going below top ratings.