Small loans made to the unemployed, poor entrepreneurs and others living in poverty back a novel securitization launched by the world's largest non-governmental organization, based in Bangladesh.
BRAC, which lends to five million borrowers and has 100,000 employees, will use the financing to diversify its funding sources, reduce its on-balance sheet assets and disburse more funds to a larger number of micro entrepreneurs, reinforcing its commitment to helping in the development of the micro-credit sector.
The deal is denominated in Bangladesh Taka (BDT), and will provide BRAC with BDT 12.6 billion (US$180 million) of financing over a six-year period. The deal also boosts the development of Bangladesh's local capital market as the first triple-A rated domestic paper. Credit Rating Agency of Bangladesh provided the rating.
Structuring the deal
The structure involves a special purpose trust that purchases the microcredit receivables denominated in taka. The trust then issues certificates to investors representing beneficial interest in such receivables.
Citibank's Bangladeshi-based arm and RSA Capital are lead arrangers on the deal while Netherlands-based FMO and the German sponsored bank KfW acted as co-leads. FMO will directly purchase one-third of the certificates. Citibank will purchase another one-third of the certificates, backed by a guaranty from FMO and counter guaranty of Kfw. The remaining one third of microcredit certificates will be purchase by Citibank and two other local banks.
"As one of the largest financing efforts ever dedicated to advancing poverty focused microcredit, this is a landmark for the micro finance industry," said BRAC Chairperson Fazle Hasan Abed.
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