Case study
BRAC Microfinance Securitization

Prof. Ian Giddy, New York University

BRAC Launches World's First Micro-Credit Securitisation

July 6th, 2006

BRAC, the world’s largest national NGOs with over 5mm borrowers and 100,000 employees, has closed World’s first micro-credit securitisation structured by RSA Capital, Citigroup, FMO and KfW.

This groundbreaking transaction, denominated in Bangladesh Taka (BDT), will provide an aggregate of BDT 12.6 BN (US$180mm equivalent) of financing for BRAC over a period of six years. Under the program, BDT 1 BN (US$15mm equivalent) will be disbursed every six months to BRAC, with a maturity of one year.

The transaction is a securitisation of receivables arising from micro-credits extended to low-income individuals by BRAC, primarily in rural communities not reached by Bangladesh’s commercial banks. The structure involves the creation of a special purpose trust which purchases the receivables from BRAC and issues certificates to investors representing beneficial interest in such receivables.

The securitisation will allow BRAC, to diversify its funding sources, reduce its on-balance assets and also disburse more funds to a larger number of micro entrepreneurs, reinforcing BRAC’s determination in helping in the development of the micro-credit sector.

“This transaction underlines BRAC’s commitment to be the leading provider of innovative financing solutions to micro entrepreneurs. We have brought the global financial markets to the doorsteps of nearly 1.2mm households in Bangladesh. As one of the largest financing efforts ever dedicated to advancing poverty focused microcredit, this is a landmark for the micro finance industry,” said Mr. Fazle Hasan Abed, Chairperson, BRAC.

The transaction will also help in the development of Bangladesh’s local capital markets, as it marks the first such securitisation in the market and also the first AAA rated local certificates issue in Bangladesh, rated by the Credit Rating Agency of Bangladesh. The transaction was very well received by the local investors.

RSA Capital is the lead arranger and Citibank, N.A. Bangladesh (Citigroup), FMO (Netherlands), and KfW (Germany) are the co-lead arrangers. FMO will directly purchase one-third of the certificates. Citibank, N.A will purchase another one-third of the certificates, backed by a guarantee of FMO and counter guarantee of Kfw. Additionally, Citibank, N.A. Bangladesh, with two other local banks will purchase the remaining one third of the certificates.

BRAC will be the Originator as well as the Service Provider for the transaction. The Trustee for this transaction will be Eastern Bank Limited of Bangladesh. Citibank, N.A. Bangladesh is the Account Bank for the trust. The transaction required the creation of a software to track a dynamic pool of receivables, which was created by MF Analytics. Clifford Chance, and Lee Khan and Partners are acting as legal advisors.

About BRAC
With more than 100,000 employees, BRAC is the largest NGO in the world. Diagnosing poverty in human terms and recognizing its multidimensional nature, BRAC takes holistic approach in striving to fulfill its twin objectives of poverty alleviation and the empowerment of the poor. This approach combines economic development and livelihood generation enterprises with health, education and other social programs. BRAC’s outreach covers all 64 districts of the country, and it has been called upon to assist a number of countries, including Afghanistan and Sri Lanka.

RSA, a financial boutique based in Dhaka, was appointed by BRAC as Lead Arranger and a group of institutions joined together to structure and to act as Co-Lead Arrangers, including Citigroup (Bangladesh/Hong Kong), FMO (Netherlands) and KfW (Germany), all of which have significant securitisation experience.


1. What aspects of this deal might be applicable to other consumer finance securitizations in developing countries?
2. What would have to be changed to make the asset-backed securities acceptable to international investors? | | | | contact
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