Mudra Bank, which is Narendra Modi government’s gift to Indian banking aiming to grow lending towards small businesses, has invested Rs 50 crore in a securitisation deal with Janalakshmi Financial Services helping the latter unlock capital.

This marks MUDRA’s first ever participation in a capital market deal as the MSME (Micro, Small and Medium Enterprises) loan facilitator looks to explore life beyond vanilla refinance products.

MUDRA Bank chief executive Jiji Mammen said that the newly formed refinancing bank was trying out new instruments to help MSMEs access capital market.

“This (securitisation) is something which is sophisticated and we would like to facilitate the market grow by investing in such instruments,” Mammen said.

“Structured financing, we believe, have a greater impact in enabling financial institutions to access funds from capital market at a lesser cost, without a charge on their limited capital. We hope to participate in more such transactions,” he added.

MUDRA has invested in securitised MSME loan portfolio originated by Janalakshmi. These are short-term loans with 1.5 years of maturity. Mammen said the investment is done at around 10% rate.

“With this transaction, MUDRA demonstrates a crucial facilitating role in ensuring that NBFCs providing microfinance and small business finance are able to access domestic capital in an efficient manner,” said Kshama Fernandes, Managing Director and Chief Executive of IFMR Capital, which structured the deal.

IFMR Capital also participated as investor through Rs 1.63 crore investment. It said that it had arranged a total of 18 securitisation and assignment transactions till date with Janalakshmi Financial Services to help it raise over Rs 2,000 crore.

“We continue to be bullish in accessing the power of capital markets to further our growth ambition. Securitization has been a key enabler in our journey,” said VS Radhakrishnan, Managing Director and Chief Executive, Janalakshmi Financial Services.

While MSMEs have traditionally been financed by public sector banks, a large proportion of small enterprises across the country continue to lack access to institutional credit. IFMR said that nearly 80% of the total estimated demand of Rs 32,50,000 crore is being originated from the informal sector.

“Going forward, with the benefit of MUDRA’s rating and support in capital market structures, these NBFCs ability to provide last mile support to small borrowers / MSMEs through sustainable financing structures will receive further impetus,” Fernandes said.

Source: The Economic Times

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