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| Brac Launches the World's First Micro-Credit Securitization | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
BRAC is proud to announce that it has received all regulatory approvals necessary to complete the world’s first micro-credit securitization, created to fund nearly 1.2 million micro-entrepreneurs. It will bring the resources of global financial markets to the doorsteps of nearly 1.2 million households in Bangladesh. This will be the first AAA-rated issue in Bangladesh. This groundbreaking transaction provides a new way for micro-finance institutions to fund their micro-credit programs while reducing dependency on volatile donor financing. It is expected to reduce the cost of capital for BRAC significantly. This securitization of micro-credit receivables will thus allow BRAC to disburse more funds to more micro-entrepreneurs. BRAC Micro Credit Securitization Series 1 will see $180 million invested in the micro-credit sector over a period of six years. The money will be disbursed to BRAC in equal portions every six months, over 12 tranches. Citigroup, FMO of Netherlands and local (Bangladeshi) financial institutions are the investors of the transaction. Additionally, Citibank NA will be the funding bank for one-third of the transaction under the guarantee of FMO and counter guarantee of KfW of Germany. BRAC will be the Originator as well as the Service Provider for the transaction. RSA Capital is the lead arranger and is responsible for creating this innovative financial structure with the help of MF Analytics. Citigroup, FMO and KfW are acting as co-arrangers. The Trustee for this transaction will be Eastern Bank Limited of Bangladesh. The transaction will require the creation of a dynamic pool of receivables, and the software that selects and updates this dynamic pool on a monthly basis has been created by MF Analytics. Clifford Chance, and Lee Khan and Partners are acting as legal advisors. The securitized pool of micro-credit receivables will be a microcosm of BRAC’s 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 of the securitized loans will be around BDT 6,700 (approximately US$95). All principal and interest payments in the transaction are calculated and paid in Bangladeshi Taka values. As a result, the entire currency risk for the transaction is borne by global investors. |
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2005 BRAC Bangladesh |
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