Brac, a leading non-governmental organisation (NGO), yesterday signed an agreement with three financial institutions to launch the world's first micro-credit securitisation.

Under the initiative titled Brac Micro Credit Securitisation Series 1, a Tk 12.6 billion (US$ 180 million) fund will be provided for the organisation for over a period of six years to facilitate micro-financing.

Fazle Hasan Abed, chairperson of Bangladesh Rural Advancement Committee (Brac), Mamun Rashid, Citigroup country officer, Bangladesh, Arthur Arnold, chief executive officer of FMO, and Martin Raschem, principal country manager of KfW, Bangladesh, signed the agreement as principal signatories on behalf of their organisations.

As per the securitisation series 1 programme, Tk 1 billion will be disbursed in every six months to the Brac with a maturity of one year.

The transaction is a securitisation of receivables arising from Brac micro-credits extended to the low income individuals in rural communities not reached by commercial banks. The structure involves creation of a special purpose trust, which purchases the receivables from Brac and issues certificates to investors representing beneficial

interests in such receivables.

The securitisation will allow the organisation to diversify its funding sources, reduce its on-balance assets and also disburse more funds to a larger portion of micro entrepreneurs, reinforcing its determination in helping development of the micro-credit sector.

The transaction will also help develop the local capital market.

RSA Capital is the lead arranger and Citibank NA, Bangladesh, FMO (Netherlands), and KfW (Germany) are the co-lead arrangers. FMO will directly purchase one-third of the certificates. Citibank NA will purchase another one-third of the certificates, backed by a guarantee of FMO and counter guarantee of KfW. Apart from this, Citibank NA, Bangladesh, with two other local banks will purchase the remaining one-third of the certificates.

Brac is the originator as well as the service provider for the transaction while Eastern Bank Limited of Bangladesh is the trustee and Citibank NA, Bangladesh is account bank for the trust. The transaction required creation of a software to track a dynamic pool of receivables, which was created by MF Analytics.

Terming the agreement significant and indicative of a future direction for financing the Brac programmes in Bangladesh and

elsewhere in the world, Brac Chairperson Fazle Hasan Abed said, "By bringing resources of the global financial markets to the doorsteps of nearly 1.2 million households in Bangladesh, this transaction underlines our commitment to be the leading provider of innovative financing solutions to micro entrepreneurs."

He said this is a landmark for the micro-finance industry as one of the largest-ever financial efforts dedicated to advancing poverty-focused micro-credit.

Robert Annibale, global director of micro-finance of Citigroup, said recognising the needs that microfinance can fulfil and opportunities that it can present, Citigroup being the world's leading financial services provider is working with leading micro-finance institutions and investors as partners and clients to develop products and services to significantly expand access to financial services, including savings, credit, insurance and remittances, in many countries.

Replying to a query, the Brac chairperson said in spite of a high interest rate, it is more important to create opportunity to the poor for having easy access to money.

Since 1972, Brac has been working with the twin objectives of alleviating poverty and empowering the poor.