Phoenix Legal has acted on a Rs 308m ($6.5m) microfinance securitisation of 42,000 micro-loans for IFMR Capital.

Phoenix co-founding partner Sawant Singh led the team assisted by associates Akanksha Midha and Jijo Cherian as sole transactional adviser to the securitisation.

"Microfinance as a sector is growing tremendously," said Singh, "and securitisation of microfinance loans is certainly going to pick up and become bigger and bigger as institutional players treat it as an appropriate asset class to invest in."

He explained that the securitisation of the portfolio of 42,000 micro-loans originated by Asirvad Microfinance, Sahayata Microfinance, Satin Creditcare Network and Sonata Finance was typical of the market apart from the multiple originators.

A microfinance securitisation, much like a securitisation of other assets, sees all receivables pooled into a special purpose vehicle (SPV) company, which is then used to raise funds from investors.

In a microfinance securitisation, the main difference was that there were no underlying assets securing the debt of the lenders, although Singh added that the recovery rates of microfinance loans were often much higher than on other loans.

According to a press release from IFMR, the IFMR Capital Mosec I SPV issued one tranche of securities, a 77 per cent senior-rated tranche with an expected six-month maturity and a 23 per cent subordinated strip with an expected 11-month maturity.

The senior tranche, which carries the least risk for investors because it includes the safest assets, was assigned the highest short term rating of P1+ by Indian credit ratings agency CRISIL, according to IFMR.