Unstable Core: is the funding of the Indian microfinance sector structurally flawed?

MicrofinanceFocus, 27 December 2011

On October 14, 2010, the Andhra Pradesh government issued an Ordinance that effectively shut down the microfinance market in the state.  That shutdown continues to this day, with collections at negligible levels.  It’s clear that the AP microfinance market is dead and will not recover for years.

Important as AP has been to India microfinance, it is not everything.  Despite the year-long crisis, repayment rates in other states remain strong.  And though AP-oriented MFIs have been seriously or even terminally wounded, others have remained unscathed.

Despite this, in the intervening period funding for MFIs – largely dependent on a handful of Indian state and commercial banks – has persisted in a state of severe liquidity deficit.  more →

Tags: , , , , , , , ,
Categories: Microfinance Focus

Microfinance Securitization: Ratings Confusion

Co-authored with Vinod Kothari; MicrofinanceFocus, 20 December 2010

Something strange is happening with microcredit securitizations in India.  Two pre-eminent ratings companies, CRISIL (a subsidiary of Standard & Poors) and FitchRatings have taken diametrically opposing views on the credit quality of microcredit-backed securities.

Last month Fitch released a report, stating that “these transactions are unlikely to receive the highest Long- or Short-term ratings.”  Meanwhile, CRISIL continues to  issue high ratings to a number of microcredit securitizations, most recently rating a Rs. 54 crore ($12 million) pool issued by Asmitha Microfin as P1+(so), the highest rating that can be assigned to short-term securitizations.  This rating continues to stand, despite the fact that Asmitha’s debt has been downgraded since then and continues to remain under a ratings watch for further possible downgrades. more →

Tags: , ,
Categories: Microfinance Focus

Hidden Risks of Securitization, Part II: Establishing a Sounder Basis for Microfinance

Co-authored with Vinod Kothari; MicrofinanceFocus, 19 August 2010

Our earlier article on the Hidden Risks behind Microfinance Securitization raised serious concerns about the inherent and largely unrecognized risks embedded in securitizations of microcredit assets.  While we believe that this article provided a useful contribution to microfinance sector, we recognize that it is sometimes easier to be a critic than an actor.  As the issues we raised were serious enough to inspire action, in this follow-up we explore in greater detail some of the potential solutions that we believe could mitigate these risks. more →

Tags: , , ,
Categories: Microfinance Focus

The Hidden Risks behind Microfinance Securitization

Co-authored with Vinod Kothari; MicrofinanceFocus, 6 July 2010

The Reserve Bank of India (RBI) recently promulgated proposed guidelines for securitization by non-banking finance companies that if implemented, would essentially gut the widespread Indian MFI practice of selling (assigning) and securitizing portions of their portfolios.  One of us has already described these consequences in detail.  Not surprisingly, this proposal caused alarm in the microfinance community and has generated intensive lobbying efforts with the RBI to modify the ruling.  As the RBI considers their case, it should bear in mind another distinguishing characteristic that sets microfinance securitizations apart. more →

Tags: , , , ,
Categories: Microfinance Focus