Case study – BRAC launches world’s first microcredit securitization

Alliance magazine

Bangladesh anti-poverty NGO BRAC has agreed the world’s first microcredit securitization structured by a group including RSA Capital, Citigroup, FMO and KfW. The securitization will provide an aggregate of BDT 12.6 billion (US$180 million) of finance for BRAC over a period of six years, with US$15 million being disbursed to BRAC every six months, with a maturity of one year.

The deal creates a special trust to buy receivables – the flow of loan and interest repayments – arising from microcredits made to low-income families by BRAC, and issues tradable certificates to investors representing an interest in those receivables. The securitization will help BRAC in its work of diversifying the microcredit sector, allowing it to diversify its funding sources, reduce its on-balance assets, and disburse more funds to a larger number of micro-entrepreneurs.

According to BRAC’s Chair, Fazle Hasan Abed, the transaction ‘underlines BRAC’s commitment to be the leading provider of innovative financing solutions to microentrepreneurs. We have brought the global financial markets to the doorsteps of nearly 1.2 million households in Bangladesh.’

The transaction will also help in the development of Bangladesh’s local capital markets, since it is the first such securitization in the market and also the first AAA-rated local certificates issue in Bangladesh. FMO will directly purchase one third of the certificates. Citibank and NA Bangladesh will purchase another third of the certificates, backed by a guarantee of FMO and counter-guarantee of Kfw. Additionally, Citibank, NA Bangladesh and two other local banks will purchase the remaining third of the certificates.

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