BRAC prices new micro-credit securitisation

Citigroup participates in interesting new capital markets structure from Bangladesh.
On Thursday (July 8) BRAC completed a BDT12.6 billion ($180 million) micro-credit securitisation. RSA Capital was the lead arranger, while Citigroup, Netherlands Development Finance Company (FMO), and Germany's KfW Entwicklungsbank were co-lead arrangers on the deal.

BRAC, the Bangladesh-based non-government organisation, closed the triple-A rated deal, backed by receivables from micro-credit loans to individuals in rural Bangladesh.

This transaction is denominated in Bangladesh taka and will provide an aggregate of BDT12.6 billion ($180 million) of financing for BRAC over of six years. Under the programme BDT1 billion ($15 million) will be disbursed every six months to BRAC, with a maturity of one year.

The securitised pool of micro-credit receivables will consist of BRACÆs micro-credit portfolio. The expected size of the dynamic pool will be about 3.3 million loans for the life of the transaction. The average principal outstanding for the securitised loans will be approximately BDT6.7 billion ($95 million).

The security receivables arising from micro-credit offerings are extended to low-income individuals by BRAC. These are very small loans that are offered primarily in rural communities not reached by BangladeshÆs commercial banks. The structure involves the creation of a special purpose trust which purchases the receivables from BRAC and issues certificates to investors representing beneficial interest in such receivables.

The securitisation will allow BRAC to diversify its funding sources, reduce its on-balance assets, while disbursing more funds to a larger number of micro entrepreneurs. Reinforcing BRACÆs determination in helping in the development of the micro-credit sector.

FMO will directly purchase one-third of the certificates. Citibank will purchase another one-third of the certificates, backed by a guarantee of FMO and counter guarantee of KFW. Additionally, Citibank, N.A. Bangladesh, with two other local banks will purchase the remaining one third of the certificates.

The transaction will also help in the development of BangladeshÆs local capital markets, as it marks the first such securitisation in the market and also the first triple-A local (Credit Rating Agency of Bangladesh) transaction in Bangladesh,

ôThis transaction underlines BRACÆs commitment to be the leading provider of innovative financing solutions to micro entrepreneurs,ö says Fazle Hasan BRACÆs chairperson. ôWe have brought the global financial markets to the doorsteps of nearly 1.2 million households in Bangladesh. As one of the largest financing efforts ever dedicated to advancing poverty focused microcredit, this is a landmark for the micro finance industry.ö

BRAC, which offers opportunities to access funding for the poor, lends to more than five million people in Bagladesh. The micro-credit loans in the securitisation averaged around $100.
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