Muthoot Microfin secures $75m in syndicated social loan to boost microfinance

Muthoot Microfin Limited (NSE: MUTHOOTMF, BSE: 544055), a forefront microfinance institution in India, has successfully announced the closure of a significant financial deal, securing a syndicated social term loan of USD 75 million in the form of an External Commercial Borrowing (ECB). This financial endeavor saw the participation of a consortium of banks including Standard Chartered Bank, Doha Bank, RakBank (National Bank of Ras Al Khaimah), Union Bank of India (UK) Ltd., and Canara Bank, GIFT City, marking a significant stride in international funding for the company.

Standard Chartered Bank played a pivotal role as the sole arranger and Social Loan Coordinator, facilitating Muthoot Microfin in establishing a Social Financing framework, which garnered a Second Party Opinion from S&P Global. The USD 75 million social loan facility, carrying a greenshoe option of USD 25 million, is earmarked for on-lending and financing eligible social loans, thereby supporting Muthoot Microfin’s commitment to empowering the underserved segments.

Structured with a tenor of 3 years and 3 months, the loan’s interest is benchmarked to a 3-month Term SOFR (Secured Overnight Financing Rate) with a margin of 2.85%, serviced quarterly. This arrangement effectively shields the company from forex risks, thanks to a comprehensive hedging strategy for both principal and interest. The inclusion of additional banking partners through the greenshoe option is anticipated, broadening the facility’s financial base.

This ECB marks Muthoot Microfin Limited’s inaugural venture into large-scale External Commercial Borrowing, featuring a flexible drawdown option planned for the upcoming financial year. This strategic financial maneuver aligns with the Reserve Bank of India’s (RBI) directive for Non-Banking Financial Companies (NBFCs) to diversify their funding sources, showcasing Muthoot Microfin’s proactive approach in enhancing its financial resilience and operational efficiency.

The utilization of the Secured Overnight Financing Rate (SOFR) for this funding underscores a significant cost advantage, positioning Muthoot Microfin favorably against domestic bank funding alternatives. The long-term funding nature is poised to bolster the company’s Asset and Liability Management (ALM) position, contributing to a more cost-efficient fund management strategy.

Mr. Sadaf Sayeed, CEO of Muthoot Microfin Limited, expressed his gratitude towards the consortium’s positive response, highlighting the ECB’s role in diversifying funding sources and fostering international partnerships. “This development enables us to not only diversify our source of funds but also create and sustain an attractive position in the international market. The ECB will further our business objectives as we plan to utilise the fund towards facilitating microfinance loans across geographies,” he stated.

This strategic move by Muthoot Microfin not only signifies its entry into international financial markets but also reflects the growing recognition and confidence in the microfinance sector’s potential to contribute significantly to financial inclusion and social development across geographies.