Early in 2011, Baskar Babu, CEO of Suryoday Micro Finance, felt the heat of being in a sector that financiers didn't fancy. The sector's growth depended on supply of credit from banks, and that had dried out.
A year earlier, the Andhra Pradesh government had passed a law that, in effect, brought down the recovery rates in the state to a single digit from 95 per cent earlier. Bankers feared a contagion, and stopped lending to MFIs (microfinance institutions) across the country. Small and medium MFIs, such as Suryoday, bore the brunt. Some folded down. For Baskar Babu, however, help came in the form of a proposal by IFMR Capital.
The proposal was simple. Suryoday was to join hands with a few other microfinance companies, pool their receivables, convert them to securities, get them rated by Crisil, and sell these credit derivative products to investors. And with the money coming in to grow their portfolio, it opened a new door.
12:07 PM, May 02, 2012