Dhaka BRAC, the world's largest national NGOs has closed the world's first AAA rated microcredit securitization structured by RSA Capital, Citigroup, Netherlands Development Finance Company (FMO) and KfW Entwicklungsbank (KfW).
This groundbreaking transaction, denominated in Bangladesh Taka (BDT), will provide an aggregate of BDT 12.6 BN (US$180mm equivalent) of financing for BRAC over a period of six years. Under the program, BDT 1 BN (US$15mm equivalent) will be disbursed every six months to BRAC, with a maturity of one year.
The transaction is a securitization 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 securitization 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.
"This transaction underlines BRAC's commitment to be the leading provider of innovative financing solutions to microentrepreneurs. We have brought the global financial markets to the doorsteps of nearly 1.2mm households in Bangladesh. As one of the largest financing efforts ever dedicated to advancing poverty focused microcredit, this is a landmark for the microfinance industry," said Mr. Fazle Hasan Abed, Chairperson, BRAC.
The transaction will also help in the development of Bangladesh's local capital markets, as it marks the first such securitization in the market and also the first AAA rated local certificates issue in Bangladesh, rated by the Credit Rating Agency of Bangladesh. The transaction was very well received by the local investors.
RSA Capital is the lead arranger and Citibank Bangladesh, FMO, and KfW are the co-lead arrangers. FMO will directly purchase one-third of the certificates. Citibank will purchase another one-third of the
certificates, backed by a guarantee of FMO and counter guarantee of Kfw. Additionally, Citibank Bangladesh, with two other local banks will purchase the remaining one third of the certificates.
BRAC will be the Originator as well as the service provider for the transaction. The trustee for this transaction will be Eastern Bank Limited of Bangladesh. Citibank Bangladesh is the account bank for the trust. The transaction required the creation of software to track a dynamic pool of receivables, which was created by MF Analytics. Clifford Chance, and Lee Khan and Partners are the legal advisors.
Citigroup (NYSE: C), the leading global financial services company, has some 200 million customer accounts and does business in more than 100 countries, providing consumers, corporations, governments and institutions with a broad range of financial products and services, including consumer banking and credit, corporate and investment banking, insurance, securities brokerage, and asset management. Major brand names under Citigroup's trademark red umbrella include Citibank, CitiFinancial, Primerica, Smith Barney, Banamex, and Travelers Life and Annuity. Additional information may be found at www.citigroup.com. Established in 2004, the Citigroup Microfinance Group leverages specialized microfinance expertise with the resources and experience of the company's Corporate and Investment Banking, Consumer, and Global Wealth Management businesses, product groups and employees to work with partners to address the needs of those who are not currently reached or are underserved by formal financial institutions.
With more than 100,000 employees, BRAC is the largest NGO in the world. Diagnosing poverty in human terms and recognizing its multidimensional nature, BRAC takes holistic approach in striving to fulfill its twin objectives of poverty alleviation and the empowerment of the poor. This approach combines economic development and livelihood generation enterprises with health, education and other social programs. BRAC's outreach covers all 64 districts of the country, and it has been called upon to assist a number of countries, including Afghanistan and Sri Lanka.
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