The National Bank for Agriculture and Rural Development (Nabard) has introduced a dedicated debt and credit guarantee product, ‘Structured Finance and Partial Guarantee Program for Non-Banking Finance Companies (NBFC)-Micro Finance Institutions (MFIs)’, to ensure unhindered flow of credit to the last mile in rural areas hit by the pandemic.

Pooled loans

The program entails providing partial guarantee on pooled loans extended to small and mid-sized MFIs. “It will help facilitate ₹2,500-crore funding in the initial phase and is expected to be scaled up. The program is expected to cover over 1 million households across 28 States and 650 districts,” said Nabard in a statement.

The launch of the product comes in the backdrop of most MFIs being excluded from the moratorium benefits from banks, creating a dip in collections, resulting in widening asset-liability mismatch, credit downgrades and spike in cost of fresh funding, it added

Nabard said: “It is estimated that until June-end, NBFCs rated lower than A- raised less than 10 per cent of the ₹4,500-crore bank debt raised under TLTRO (Targeted Long-Term Repo Operation) 2.0 and less than 5 per cent of the ₹1,100-crore bank debt raised under the PCG (Partial Credit Guarantee) scheme. Small- and mid-sized NBFC-MFIs, despite having strong operating models and sound corporate governance practices, were left in the lurch.”

The apex development bank said its Pooled Loan Issuance (PLI) structure provides the lending bank adequate comfort through partial credit protection, reduces cost of capital as the rating of the loans get notched up, and helps lenders meet priority sector goals.

The PLI structure will pool together the risk of multiple borrowers and add a layer of partial first loss credit enhancement from a highly rated guarantor ((Nabard).

GR Chintala, Chairman, Nabard, said: “The partially guaranteed loan facility will catalyse much-needed financing to millions of households, agricultural and business markets to sustain in the post Covid-19 environment. The overwhelming response to the program from commercial lenders and our partners is heartening.”

Beneficiaries

The program has attracted a large number of mainstream banks and small finance banks to participate, the bank said. Now, it will ensure that the beneficiaries of the program are small and mid-sized MFIs (average rating of BBB and average size of ₹500 crore of assets under management) that operate in rural hinterlands and serve farmers, traders, rural businesses and households.

Nabard has collaborated with Vivriti Capital, a technology-led credit platform, as the structurer for the facility. Vivriti Capital manages and runs CredAvenueTM, a marketplace for enterprise debt, which enables enterprises to raise debt from loan, bond and securitisation markets. For the first transaction under the programme, Nabard and Vivriti have partnered with Ujjivan Small Finance Bank.

The apex development bank said that since the beginning of the pandemic, it has disbursed around ₹2,000 crore to MFIs and NBFCs.

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