NGO-MFIs to raise BDT 16.5bn from capital market


For the first time, BSEC permitted non-governmental organizations (NGOs) are out in the market to raise funds by issuing bonds. These NGOs are renowned microfinance institution-BRAC, Buro Bangladesh and Sajida Foundation.


The three leading NGOs in the country applied altogether for 16.5 bn by issuing bonds last month. These NGO microfinance companies are funded by donor support in the form of revolving funds and operating grants. Although there were no guidelines before that, Microfinance Regulatory Authority had published guidelines for Microfinance after they had applied to the MRA.

In the total amount of 16.5bn bonds, the portion of Brac is the largest, which is 13.5 billion, Buro Bangladesh Tk 1.5 billion and Sajida Foundation for 1.5 billion. These NGOs have applied to the MRA for raising these funds.

According to the guidelines published by MRA, these NGOs can raise funds through zero-coupon bonds that are non-convertible and fully redeemable. A zero-coupon bond, also known as an accrual bond, is a debt security that does not pay interest but instead trades at a deep discount, rendering a profit at maturity when the bond is redeemed for its full face value. These bonds range with a tenor of 1.5 to 5 years.

The guidelines further read that, a special purpose vehicle (SPV) can be set up by any of the eligible MFIs under the Securities and Exchange Commission (Asset-backed securities) Rules 2004 to scrutinize receivable loans or the loan portfolio to check further accordance. The tenor of such bonds will be a minimum of two years.

They also set eligibility criteria in the guideline to be able to raise such funds. The first criteria are the eligible MIFs will have to maintain a reserve fund comprising 10 percent of its accumulated surplus and liquidity reserve comprising at least 15 percent of its total deposit.

Other than that, the eligible MIFs must have provided Tk 10 billion loans to borrowers and 200 branches to avail the opportunity. Additionally, they must maintain at least 70 percent of clients as borrowers and the maximum deposit is 80 percent to the borrowers.

The eligibility criteria also include 90 percent or more recovery rate and the debt-equity ratio is 9:1 after issuance of the bond, classified or non-performing loan less than 10 percent. Most importantly, a MIF requires a NOC from MRA before applying for such fundraising.

As the eligibility criteria is a little bit critical, it is assumed by MRA Director Md. Yakub told the Financial Express that some 10-12 leading NGO-MIFs would have been eligible to get the opportunity under this criteria.

However, the criteria is criticized by the Chairman of Credit and Development Forum(CDF) Murshed Alam Sarkar. He said the guidelines should be more relaxed to include more NGO-MIFs. He also added MRA should have shared and discussed the guidelines before issuing them like it always does. He also hoped that the guidelines would be made more industry-friendly after sharing with them and customizing to the needs.

On the other hand, MRA has shared their latest annual report according to which 10 leading NGO-MIFs have around 65 percent share of the entire micro-credit market. These NGOs are- Brac, Buro, ASA, TMSS, SSS, Jagaroni Chakra Foundation, Padakhep, Uddipon, Sajida Foundation and Shakti foundation.

The MRA Director added that they added guidelines last week as some NGOs showed interest to raise funds although there were no rules under the Microcredit Rules 2010 to raise funds from the capital market.

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