Securitisation star

What Citigroup terms “possibly the first micro-credit receivable securitisation in the world and the first in Asia,” closed last July. Citigroup was one of several arrangers – FMO, KfW and RSA Capital – to secure an aggregate of Tk12.6bn (US$180mn) of financing for BRAC, the largest NGO in the world with 5mn borrowers, over a period of six years.

The transaction mobilised both official agency and private sector funding, making it a truly replicable transaction, states Citibank.

The transaction is a securitisation of receivables arising from micro-credits extended to low-income individuals by BRAC, primarily in rural communities not reached by Bangladesh’s commercial banks. The structure involves the creation of a special purpose trust which purchases the receivables from BRAC and issues certificates to investors representing beneficial interest in such receivables.

The securitisation will allow BRAC to diversify its funding sources, reduce its on-balance assets and also disburse more funds to a larger number of micro entrepreneurs, reinforcing BRAC’s determination in helping in the development of the micro-credit sector.

“Securitisation and export and agency finance worked in concert to bring a complex financing solution to an emerging market, with no experience in securitisation,” says a Citibank spokesman. “By leveraging both groups’s expertise, Citigroup was able to deliver a value-added financing solution to a microfinance institution in Bangladesh which will use the funds to broaden its microfinance activities in one of the world’s poorest countries.”

Under the programme, Tk1bn (US$15mn) will be disbursed every six months to BRAC, with a maturity of one year. The deal is also the first securitisation in the Bangladeshi market.

FMO will directly purchase one third of the certificates. Citibank will purchase another third, backed by a guarantee from FMO and a counter-guarantee from KfW. Additionally, Citibank, Bangladesh, with local banks Pubali Bank and The City Bank, will purchase the remaining one third of certificates.

The FMO guarantee is the first true local currency guarantee (without any crystallization in US$) for the organisation.

The certificates received a AAA rating by Credit Rating Agency of Bangladesh (CRAB).

BRAC, a national private development body, was set up in 1972 by Fazle Hasan Abed as a relief organisation. It initially focused on resettling refugees returning from India after the Bangladeshi war of independence in 1971. After this, it redirected its focus on the issue of poverty alleviation and empowerment of the poor, especially women, in rural areas. BRAC has so far organised about 5.04mn people, mostly women, into 160,000groups called Village Organisations.


Deal information

Issuer and originator: BRAC
Amount: Tk12.6bn (US$180mn)
Arrangers: Citibank; FMO; KfW; RSA Capital
Investors: Citibank; FMO; Pubali Bank; The City Bank
Account bank: Citibank, Bangladesh
Trustee: Eastern Bank
Guarantees: FMO; KfW
Tenor: 6 years
Margin: 4.25% for clean portion; 4.5% for FMO tranche
Law firms: Clifford Chance (international counsel); Lee Khan & Partners (local investors)
Date signed: July 2006