Citi ties up with SKS, Basix
MFIs are working out credit arrangements with banks to sell their acquired portfolios to spruce up capital base.
By Preeti R Iyer & Gayatri Nayak, TNN |
In A bid to spruce up their capital base, microfinance institutions are working out credit arrangements with banks in order to sell their acquired portfolios regularly.
For starters, Citi has entered into a similar arrangement with two leading microfinance institutions, SKS Microfinance and Basix. Citi global director for corporate citizenship & president, and CEO of Citi Foundation Pamela Flaherty said, “There are three key focus areas for us in India — microfinance and micro-enterprise; promoting financial literacy and environment & climate change. Financial inclusion is a huge issue in India, given the large population of unbanked people. Therefore, we have several initiatives with MFIs to help them expand their reach and scale. We are also looking at forging a linkage between microfinance and the move towards cleaner energy solutions.”
Out of SKS’ 441 branches, 49 have been identified for this purpose, based on parameters such as the vintage of the branch, location and history of its existence.
The total size of the deal has been fixed at Rs 180 crore, according to which, SKS has agreed to sell loans worth Rs 180 crore to Citi over the next one year. Over the past two months, SKS has sold loans worth Rs 40 crore to Citi.
SKS Microfinance founder Vikram Akula said the MFI was in talks with a couple of other banks too for similar arrangements. “This helps the microfinance institution get an access to funds without diluting their equity stake to any new party. Most of the microfinance institutions in India face the challenge of raising fresh equity as they are constrained due to the capital adequacy requirements. On the other hand, it helps banks meet their targets for priority sector lending,” he pointed out.
According to this arrangement, MFIs transfer their loans to customers to Citi’s books on a monthly basis. The loan is originated by the MFI, which keeps it on its own books for a while after which, it is sold as part of a larger pool to Citi on a monthly basis.
Ms Flaherty explained, “Even after we take the loans onto our books, MFIs continue to maintain the relationship with customers, but the funding and retail risk rests with us. We are also looking at forging a linkage between microfinance and the move towards cleaner energy solutions.”
Basix has so far sold assets worth Rs 1 crore to Citi, which comprises nearly 2,000 customers. Basix CEO NV Ramanna said, “once the loans are sold to Citi, these customers get debit cards from Citi and are entitled to use Citi’s ATMs. Till now, we have only sold assets, which we have lent to people living in urban Hyderabad.
We also have our systems connected to Citi’s systems, so that assets could be transferred via the electronic mode also.”
Basix currently has a term loan from Citi worth Rs 5 crore, which it is looking at scaling up to Rs 30 crore. Also, it plans to sell loans to Citi worth Rs 15 crore in the next one year, Mr Ramanna informed. Basix may also look at having similar arrangements with other banks if the terms are more favourable.
In a bid to promote its initiative towards environment protection, in May 2006, Citi made a global commitment of $50 billion towards addressing climate change and environment-related issues, to be disbursed over a 10-year period.
Ms Flaherty explained, “of this, $30 billion would be for underwriting lending and structured finance, $2 billion for investments through the private equity route, $10 billion for funding the capital expenditure of major buildings looking at getting a Leed certification and $6 billion towards financing energy-efficient projects.”
For starters, Citi has entered into a similar arrangement with two leading microfinance institutions, SKS Microfinance and Basix. Citi global director for corporate citizenship & president, and CEO of Citi Foundation Pamela Flaherty said, “There are three key focus areas for us in India — microfinance and micro-enterprise; promoting financial literacy and environment & climate change. Financial inclusion is a huge issue in India, given the large population of unbanked people. Therefore, we have several initiatives with MFIs to help them expand their reach and scale. We are also looking at forging a linkage between microfinance and the move towards cleaner energy solutions.”
Out of SKS’ 441 branches, 49 have been identified for this purpose, based on parameters such as the vintage of the branch, location and history of its existence.
The total size of the deal has been fixed at Rs 180 crore, according to which, SKS has agreed to sell loans worth Rs 180 crore to Citi over the next one year. Over the past two months, SKS has sold loans worth Rs 40 crore to Citi.
SKS Microfinance founder Vikram Akula said the MFI was in talks with a couple of other banks too for similar arrangements. “This helps the microfinance institution get an access to funds without diluting their equity stake to any new party. Most of the microfinance institutions in India face the challenge of raising fresh equity as they are constrained due to the capital adequacy requirements. On the other hand, it helps banks meet their targets for priority sector lending,” he pointed out.
According to this arrangement, MFIs transfer their loans to customers to Citi’s books on a monthly basis. The loan is originated by the MFI, which keeps it on its own books for a while after which, it is sold as part of a larger pool to Citi on a monthly basis.
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Ms Flaherty explained, “Even after we take the loans onto our books, MFIs continue to maintain the relationship with customers, but the funding and retail risk rests with us. We are also looking at forging a linkage between microfinance and the move towards cleaner energy solutions.”
Basix has so far sold assets worth Rs 1 crore to Citi, which comprises nearly 2,000 customers. Basix CEO NV Ramanna said, “once the loans are sold to Citi, these customers get debit cards from Citi and are entitled to use Citi’s ATMs. Till now, we have only sold assets, which we have lent to people living in urban Hyderabad.
We also have our systems connected to Citi’s systems, so that assets could be transferred via the electronic mode also.”
Basix currently has a term loan from Citi worth Rs 5 crore, which it is looking at scaling up to Rs 30 crore. Also, it plans to sell loans to Citi worth Rs 15 crore in the next one year, Mr Ramanna informed. Basix may also look at having similar arrangements with other banks if the terms are more favourable.
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In a bid to promote its initiative towards environment protection, in May 2006, Citi made a global commitment of $50 billion towards addressing climate change and environment-related issues, to be disbursed over a 10-year period.
Ms Flaherty explained, “of this, $30 billion would be for underwriting lending and structured finance, $2 billion for investments through the private equity route, $10 billion for funding the capital expenditure of major buildings looking at getting a Leed certification and $6 billion towards financing energy-efficient projects.”
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