Reputed foreign and local financial institutions are arranging the fund against the NGO's existing receivable micro-credits across the country, according to the Bangladesh Rural Advancement Committee sources.

Bangladesh Bank has already given nod to this programme, which aims to fund nearly 1.2 million micro-entrepreneurs.

This groundbreaking transaction provides a new way for micro-finance institutions to go ahead with their micro-credit programmes reducing dependence on volatile donor financing, a Brac high official said, adding "this securitisation of micro-credit receivables will thus allow Brac to disburse more funds to more micro-entrepreneurs".

Securitisation is a way of arranging funds against the existing receivable micro-credits that leads to reduction in risk, increase in liquidity besides improvement in economic efficiency.

As per the plan under Brac micro-credit securitization series 1 programme, an amount of $180 million will be invested in the micro-credit sector within a timeframe of six years. The parties in securitisation will disburse the money under the programme to the borrower non-governmental organisation in every six months in as many as 12 instalments.

Citigroup, FMO of the Netherlands and two local financial institutions are among the parties in the securitisation.

Apart from this, Citibank NA will be the funding bank for one-third of the transaction under the guarantee of FMO and counter guarantee of KfW of Germany. Brac will be the originator and service provider for the transaction.

RSA Capital is the lead arranger and will be responsible for creating this financial structure with the help of MF Analytics. Citigroup, FMO and KfW.

The trustee for this transaction will be Eastern Bank Limited of Bangladesh. The transaction will require creation of a dynamic pool of receivables and a software that selects and updates this dynamic pool on a monthly basis.

The securitised pool of micro-credit receivables will be a microcosm of Brac's micro-credit portfolio.

All principal and interest payments in the transaction are calculated and paid in Bangladeshi taka values. As a result, the entire currency risk for the transaction is borne by global investors.

Micro-finance is a proven approach to empowering poor people to pull themselves out of poverty. Very poor people, often women receive small loans and other financial services from local organisations called micro-finance institutions (MFIs).

As of 2005, it has been estimated that only 23 percent of the demand has been met. Currently, non-commercial investors, including donors, bilateral and multilateral financial organisations, disburse only about US$ 400 million a year to the sector.

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