34028 - China Fullerton ABS

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Summary of Investment Information

Project Number

34028

Company Name

Fullerton Microcredit Sichuan Co., Ltd.

Date SPI Disclosed

Oct 24, 2014

Country

China

Region

East Asia and the Pacific

Projected Board Date

Nov 28, 2014

Environmental Category

FI-3 - No Impact

Status

Pending Signing

Last Updated Date

Nov 30, 2016

Department

Regional Industry - FIG Asia & Pac

Industry

Financial Markets

Previous Events

Approved : Dec 12, 2014

Sector

Microfinance and Small Business - Non Commercial Banking

Project Description

The contemplated project includes IFC’s credit guarantee for and/or purchase of the senior tranche of an asset backed securitization (“ABS”) to be issued by a special purpose trust that will hold for the benefit of investors a portfolio of eligible micro and small loans originated by Fullerton Credit (Sichuan) Co., Ltd (the “Originator” or “FCSC”). The size of the ABS will be up to RMB250 million, and the tenor of it will be up to 2 years. The project is aimed to i) catalyze the ABS market in China; and ii) to support FCSC, a leading micro credit company, to access to sustainable and diversified funding sources, and therefore assist it to expand microfinance business to support more micro, small and medium sized enterprises (“MSMEs”).

Sponsor / Cost / Location

Product Line	IFC Investment (million USD)
Risk Management
Guarantee	29.85
Loan
Equity

IFC's loan to the financial institution described in this SII is targeted for on-lending to the following sector(s):

Product Type	Use of Proceeds
Guarantee	Loans to Microfinance Borrowers

IFC's Definitions of Targeted Sectors can be found here.

Development Impact

4.1 Promoting Development of China''s Microfinance Industry: The issuance of securitization backed by micro credit companies'' (MCCs'') lending portfolios will effectively help MCCs diversify funding source, improve funding utilization, increase asset turnover, and expand lending business. It will also promote credit rating for MCC originators, improve their market recognition and incentivize them to strengthen risk management
4.2 Increasing Access to Finance for MSMEs: MSMEs play an important role in creating employment and contributing to local economy particularly in frontier regions. Nevertheless, they are under-served by traditional financial institutions. The proposed transaction experiments with FCSC to enable MCCs to have access to the capital markets and to help the MCCs expand credit supply accessible and affordable to MSMEs
4.3 Catalyzing China''s ABS Market: The proposed transaction will catalyze China''s ABS market and improve the efficiency of capital markets in China, by promoting credit ratings and market-standard securitization structuring techniques, by facilitating regulations setting and refining, and by bringing a new asset class, microfinance, to the market
4.4 Demonstration Effect: IFC''s participation in this initiative will demonstrate IFC''s confidence in microfinance industry and China''s capital markets, and IFC''s commitment to supporting the development of China''s financial sector through continuous innovation. It is expected that more MCCs will have access to the capital markets, replicating the structure of this transaction

3.1 Stamp of Approval: IFC''s further innovation in China''s microfinance sector and additional engagement with FCSC will increase market confidence in both the sector and the Company. With its international AAA rating and proven track record in global structured finance transactions, IFC''s participation in Fullerton ABS will positively influence the perception of capital markets, strengthen the confidence of potential investors, and reduce execution risks
3.2 Microfinance Industry Knowledge: IFC is a leading investor in microfinance industry, with a proven record of being an equity investor as well as a loan provider to MCCs in China. IFC can add value to the other stakeholders of the proposed transaction in originator selection, transaction structuring and risk mitigation
3.3 Financial Structuring Expertise: as a pioneer in structured transactions in emerging markets, IFC can act as a lead credit enhancer and anchor investor, coordinate with regulators, advise originators in arranger selection and structuring, add credibility with independent due diligence, and share expertise on ratings in emerging markets
3.4 Long Term Partnership with FCSC: IFC''s strong support to FCSC in this innovative transaction will help FCSC access to a new, sustainable and diversified funding source while establishing brand name in China''s capital markets

E&S Category Rationale / Risks and Mitigation

The proposed investment entails IFC''s credit guarantee for and/or purchase of the senior tranche of an asset backed securitization to be issued based on an asset pool of eligible micro and small loans originated by Fullerton Credit (Sichuan), an existing IFC client involved in microfinance activities. IFC reviewed a number of sample loans to be included in the pool. These loans were provided to individuals/owners of micro and small enterprises predominantly in the business of retail and service activities, such as shops selling cloths or car parts, restaurants, home improvement contractors. Some of the borrowers are also involved in small manufacturing activities, such as small scale production of furniture, metal parts, or clothes. The project is therefore classified as an FI-3 according to IFC Environmental and Social Review Procedure. Loans included in the asset pool shall meet the requirements of IFC Exclusion List and where they present E&S risks, should meet requirements of national E&S laws and regulations. Under the existing IFC investment in FCSC, the company has implemented an environmental and social management system (ESMS) to ensure its lending is consistent with IFC Exclusion List and applicable national laws and regulations. FCSC will be required to continue to implement its ESMS and provide annual environmental and social performance reports to IFC.

Contacts

For Inquiries About the Project, Contact

Mr. Sam Weng
Fullerton Credit (Sichuan) Co., Ltd.
36/F, Huamin Empire Plaza, No.1 Fuxing Road, Chengdu, 610016, China

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