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In August of 2006, MF Analytics closed the world's first micro-credit securitization. Our client, BRAC, is the world's largest NGO with over 100,000 employees and services over 6,000,000 clients.
- Raise $180 million (in local currency equivalent) in local capital market
- Reduce cost of funds
- Methodology had to be easily replicable
- Longer maturity: financing's duration had to be longer than the durations of the underlying assets (< 1 yr)
- Diversify investor base
- World's first micro credit securitization.
- Bangladesh Government regulators (Central Bank and SEC).
- Had no precedents for this transaction
- Securitization laws in infancy
- Information technology
- BRAC's branches were not all computerized until recently
- Still a time lag between loan collections and information availability that had to be incorporated into structure.
- Learning curve
- Originator has no previous experience with such transactions
- Lack of 'clear documentation' on BRAC's operations
- Investors had very little direct experience with micro credit
- Regulators had to understand a complex transaction in the context of the local market
- Global and Bangladesh legal teams had no precedents, and no experience in micro credit
- Securitized BRAC micro loans into a micro credit backed security (MCBS)
- Designed patent-pending algorithms to harmonize the underlying data, and continually optimize the portfolio.
- Total number of loans which will revolve through the transaction is over 1,000,000
- Sold 12 tranches to institutional investors
- Provide monthly performance reporting
The $180 MM transaction priced at 200 basis points better than BRAC would have gotten using traditional liquidity sources. The lower cost of capital was a function of the MF Analytics' engineering for BRAC a structure which earned the first AAA credit rating any Bangladeshi issuance had ever received. The BRAC transaction has since won 7 awards including 2 deals of the year.
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