The Tk1,350cr bonds will be issued to institutional investors and high net worth individuals through private placement
Brac, as the first non-government organisation (NGO) in the country, is now opting for issuing bonds to fuel its microfinance programme for rural and urban micro businesses.
The country's largest microfinance providing NGO has applied to securities and microcredit regulators, seeking their approval for issuing zero-coupon bonds worth Tk1,350 crore, confirmed Tushar Bhowmik, chief financial officer (CFO) at Brac.
According to the Brac application, the money from the planned bonds will be utilised in Brac's large and fast-growing microfinance programme — with outstanding credit grown to over Tk28,000 crore from less than Tk24,400 crore at the end of 2019.
The bonds will be issued to institutional investors and high-net-worth individuals through private placement. The tenure of the nonconvertible bonds will be up to five years.
Currently, NGOs have two windows for funding their microfinance programmes – savings of member-clients and loans from banks or other institutions.
Brac's sizable programme – contributing to one-fourth of the nationwide microcredit disbursement – has got more than 35 local banks as lenders. But it often faces difficulty with the single borrower exposure limit.
"We also need to diversify the source of funds, that is why Brac is now opting for bond financing," said Bhowmik.
The planned bonds will also open the avenue for non-lender institutions like insurance and gratuity funds to invest in Brac's microfinance programme and the CFO expects a good response from them because of Brac's "AAA" credit rating and good reputation as an issuer organisation.
"The application is under our board's consideration at this point," said Amalendu Mukherjee, executive vice-chairman of the Microfinance Regulatory Authority.
Meanwhile, the Bangladesh Securities and Exchange Commission (BSEC) – also pushing for rapid development of the local bond market – is scrutinising the application's details.
BSEC Executive Director and Spokesperson Rezaul Karim told The Business Standard, the BSEC as the securities regulator is working on legal and financial aspects of the bond proposal and the applicant also has to submit its primary regulator's nod.
He said although the bond is meant for private placement, the commission will ask them for making the bond tradable at the alternative trading board of the stock exchanges so that investors can enjoy the liquidity – the ease of buying and selling securities.
MTB Capital is working as the trustee and another local investment bank, RSA Capital, has been mandated as the lead arranger for the bonds.
Brac, the world's largest NGO, began its journey in 1972. It started with providing loans to fishermen in Sulla located in the north-eastern district of Sunamganj in 1974.
The group-based loan was the first non-formal loan without interest given by Brac.
In 2019, Brac's microfinance loan disbursement grew 21% and savings of members rose 39%.
Less than a thousand institutions are operating microfinance activities under the licences of the Microcredit Regulatory Authority.
In the middle of 2019, the total outstanding loans of the institutions were Tk78,758 crore, while the members' savings were Tk30,619 crore.