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Treasury & Capital Markets
India ABS fund aims to expand MSE financing
IFC, M&G Catalyst-backed strategy focuses on micro loans, targets US$250 million AUM
Chito Santiago 24 May 2023

The International Finance Corporation (IFC) and global private assets strategy M&G Catalyst have set up India’s first securitization fund aimed at enhancing the securitization market and expanding access to financing for millions of low-income households and micro and small enterprises (MSEs) in the country, especially those owned by women.

The Vivriti India Retail Asset Fund (VIRAF), an asset-backed securitization (ABS), has an investment of US$30 million from the IFC and a capital commitment of US$75 million from M&G Catalyst, a global private assets strategy within international investment manager M&G Investment.

The fund, which will be managed by Vivriti Asset Management (VAM), will focus on scaling up investment in securitized debt securities with MSE-backed assets, predominantly micro-loans to MSEs, which will constitute about 90% of the portfolio.

Domiciled in GIFT City International Financial Services Centre, the VIRAF has a fund term of 10 years with target assets under management (AUM) of US$250 million. The participation in the fund by IFC and M&G Catalyst is expected to attract other investors, mobilizing more funds to channel to non-bank finance companies that focus on supporting underserved MSEs in India.

India has 63 million micro, small and medium enterprises (MSMEs) contributing up to 30% of GDP, generating over 40% of exports, and creating employment for over 100 million people. Yet, an IFC study estimates that the MSME finance gap in India is US$342 billion, with MSEs accounting for 95% of that gap. The IFC’s investment, it notes, will help financial institutions offload existing MSME loans while unlocking capital to support MSME growth.

Further, the financing gap for women-owned MSMEs is estimated at US$158 billion, equivalent to about 49% of the total MSME finance gap in India. Addressing this challenge, the project is designed to cater to the needs of women-owned MSMEs, with at least 45% of the fund’s proceeds earmarked for them.

The Indian securitization market remains nascent and underdeveloped compared with other emerging economies, according to IFC, underscoring the need for a robust and efficient debt capital market that offers sustainable solutions to bridge the MSME finance gap. The fund supports this market’s growth, promoting greater participation from investors and originators, and channeling capital towards bolstering financial inclusion.

The VIRAF, says Vineet Sukumar, VAM’s founder and managing director, aims to deepen and develop India’s ABS markets by intermediating large global capital pools to last-mile financing, thereby setting a prototype for more such vehicles.

“Our research indicates that Indian ABS has outperformed internationally better-rated ABS, which makes Indian ABS a compelling opportunity for global investors,” Sukumar points out. “M&G and IFC’s participation serves as a validation of the huge and untapped potential of Indian ABS as an asset class, stability of the regulatory environment, and India’s positive macro outlook.”

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