Developing securitisation market key to drive financial inclusion

Mumbai: Global rating agency Moody's on Thursday said a developed securitisation market will help the country achieve its goal of financial inclusion by providing cheap credit to under-served segments of the society.

"Development of domestic securitisation markets will help the country achieve its common goal of building inclusive financial systems that will ultimately bring affordable credit to the underprivileged segments of the society and which are usually excluded from the conventional banking system," the agency said in a report.

NBFCs specialise in offering more tailored and flexible loan products to the under-served, weaker segments of the society.

"While there are various funding avenues open to NBFCs in the country, securitisation has proven to be reliable and competitively priced, and is therefore an important source of funds the NBFCs use for lending," the report said, and noted that NBFCs' turnaround time from loan application to disbursement is faster than those of banks.

The report said NBFCs' knowledge of local industries and sub-markets and their ability to understand the credit profiles of their borrowers, despite a lack of information, help them underwrite credit to borrowers otherwise ineligible for bank loans.

"In such an environment, securitisation enables financially weak or small businesses that have no track record to access cost-competitive funding," the agency said.

As repayment of securitisation notes rely on the asset pool instead of repayment capability of the originator, securitisation could offer lowly-rated originators an opportunity to issue transactions at a higher rating than unsecured borrowings, it added.

Notably, in order to bring more number of people under the ambit of formal financial system, the RBI last September had granted approval to 10 entities, including eight MFIs, to operate as small finance banks.

These small finance banks will accept deposits and extend credit to marginal farmers and small business units, but their mandate will overlap with the target market of microfinance companies.

"In this case, securitisation will continue to be instrumental for these small Indian finance banks, as it will take time for them to develop a retail deposit franchise," the report noted.