Securitisation of microfinance loan receivables done by issuing pass-through certificates (PTCs) or via direct assignments grew 125 per cent to around Rs 11,500 crore in financial year 2015-16.
This stood at Rs 5,075 crore in the fiscal 2014-15.
“Growth happened as microfinance institutions opted for this funding route to churn capital faster and fuel growth,” rating agency Crisil said in a report today.
The overall securitisation market may have grown by 60 per cent to an estimated Rs 70,000 crore in 2015-16, it added.
For issuance demographics, PTCs continue to be the preferred route with 85 per cent of the volume in the last fiscal, whereas in the overall securitisation market, direct assignments rule the roost, accounting for two-thirds of new transaction volumes.
“A clutch of factors contributed to the volume more than doubling. Firstly, banks are increasingly using this route to achieve their priority sector lending targets. Secondly, negligible delinquencies and higher yields have made transactions attractive and helped expand the investor base,” Crisil senior director Krishnan Sitaraman said in the report.
Thirdly, the report said, during the last 12-15 months, MFIs have seen a spurt in assets under management, so have used securitisation to fund the growth.
Earlier, investors for PTCs were mostly private banks, and for direct assignments, public sector banks.
But the last fiscal saw many non-banking finance companies investing in microfinance pools, as also the Micro Units Development and Fefinance Agency (Mudra) Bank.
With the distribution tax issue resolved, the agency expects renewed interest from institutional investors, especially mutual funds and foreign portfolio investors.
It further said the microfinance sector remains vulnerable on account of the unsecured nature of the loans, weak credit profile of the underlying borrowers and the political and geographic concentration risks.
“Greater regulatory clarity — eight out of 10 entities that were given an ‘in-principle’ approval by the RBI to set up small finance banks are MFIs — and a stable operating environment have boosted investor confidence,” the report concluded.