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NGO-MFIs to raise Tk 16.5b from stock market

ISMAIL HOSSAIN | June 23, 2021 00:00:00

Country's non-governmental organizations (NGOs), for the first time, are out in the capital market to raise funds by issuing bonds.

Three leading NGO-Microfinance Institutions-Brac, Buro Bangladesh and Sajida Foundation-have already applied to the Bangladesh Securities and Exchange Commission (BSEC) for permission to float bonds for raising funds.

These three NGO-MFIs early last month applied altogether for Tk16.5 billion-BracTk13.5 billion, Buro Bangladesh Tk1.5 billion and Sajida Foundation Tk1.5 billion-by issuing bonds.

Though there were no guidelines when they applied to BSEC, the Microcredit Regulatory Authority (MRA) has issued guidelines for MFIs for the first time in the country.

The three NGO-MFIs have applied to MRA for NOC for raising funds.

When contacted, Chief Financial Officer of Brac Tushar Bhowmik said, "Yes, Brach as applied to BSEC for raising Tk 13.50 billion through zero-coupon bond."

He further said the type of the security is non-convertible redeemable zero-coupon bond with a tenor ranging from 1.5 years to 5.0 years.

Buro Bangladesh Director Mosharraf Hossain said they have applied to BSEC for raising Tk1.5 billion by issuing bond.

"Now we are waiting for NOC from MRA," he added.

According to guidelines issued by MRA this week, eligible MFIs can raise funds through zero-coupon bond which is fully redeemable and non-convertible.

Any of eligible MFIs can set up a special purpose vehicle (SPV) under the Securities and Exchange Commission (Asset Backed Securities) Rules, 2004 to securitize receivable loans or to securitize full or part of its loan portfolio, the guidelines read.

It said the tenor of such bond will be minimum two years. An MFI requires an NOC from MRA before applying for such fundraising.

MRA sets a set of criteria to be eligible for raising such funds including having reserve fund comprising at least 10 per cent of its accumulated surplus and liquidity reserve comprising at least 15 per cent of its total deposit.

The interested MFIs must have Tk 10 billion loans to borrowers and 200 branches to be eligible for the opportunity.

According to the guidelines, the NGO-MFIs who want to take the opportunity must maintain minimum 70 per cent clients as borrowers and maximum deposit is 80 per cent of the principal loan to borrowers.

The eligibility criteria also include 90 per cent or more recovery rate and the debt equity ratio is 9:1 after issuance of bond, classified or non-performing loan less than 10 per cent etc.

MRA Director Md. Yakub told the FE that some 10-12 leading NGO-MFIs will be eligible to get the opportunity under this set of criteria.

According to the latest MRA annual report, 10 leading NGO-MFIs have around 65 per cent share of the entire microcredit market.

Ten leading NGO-MFIs are: Brac, ASA, Buro Bangladesh, TMSS, SSS, Jagorani Chakra Foundation, Padakhep, Uddipon, Sajida Foundation and Shakti Foundation.

According to Microcredit Rules 2010, MFIs can raise funds from the capital market. But there were no guidelines for such bond.

"We approved guidelines last week as some NGO-MFIs showed interest for the first time," the MRA director added.

Murshed Alam Sarkar, Chairman of Credit and Development Forum (CDF), a forum representing NGO-MFIs, said the guidelines should be more relaxed to include more NGO-MFIs.

He also said MRA didn't share with CDF, which usually it does, before issuing the guidelines.

"We hope MRA will share with CDF and make the guidelines industry-friendly," he added.

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