In order to keep the credit flowing in rural areas affected by the pandemic, The National Bank for Agriculture and Rural Development (Nabard) has announced a dedicated debt and credit guarantee product. The product named Structured Finance and Partial Guarantee Programme to NBFC-MFIs offers partial guarantee on pooled loans extended to small and mid-sized micro finance institutions (MFIs), according to a report by PTI.
Pooling of loans is gaining popularity among NBFCs as it enhances the credit rating of the loans and makes the transaction cheaper than an individual deal. The announcement follows the signing of a pact by Nabard with Vivriti Capital and Ujjivan Small Finance Bank earlier this month.
The initiative is expected to enable microenterprises and low-income households to access sustainable finance.
The pooled loan issuance (PLI) structure has the capability of offering a longer leash to the lending bank and providing them with adequate comfort through Nabard's partial credit protection. The structure reduces the cost of capital as the rating of the loans surges and helps lenders meet priority sector goals. The structure essentially pools together the risk of multiple borrowers and adds a layer of partial first loss credit enhancement from a highly rated guarantor.
G R 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.” It is expected to dole out ₹2,500 crore funding in the initial phase and will be scaled up afterwards. Considering its reach across 28 states and 650 districts, the programme has the potential to cover over 1 million households.
As per the report, the first transaction under the programme will entail Nabard and Vivriti partnering with Ujjivan Small Finance Bank. Since the beginning of the pandemic, Nabard has rolled out special liquidity lines and has disbursed around ₹2,000 crore to MFIs and NBFCs, it added.
In the recent past, many similar structures have emerged in addition to PLI such as Replenishment Based Structure, Covered Bond, Collateralised Loan Obligation, Single Issuer Partially Credit Enhanced Bond etc.
Magazine
