Structuring a Fund Platform for Financial Inclusion in India
In the latest edition of Securitisation & Structured Finance Handbook 2016/17 (published by Capital Markets Intelligence) Ravi Saraogi, IFMR Investments & Robin Tyagi, IFMR Capital, have authored a chapter on Structuring a Fund Platform for Financial Inclusion in India. The authors present the use of structured finance in designing a fund platform for greater capital market access for financial inclusion in India and highlight the potential that structured fund platforms have in attracting market participants to access the bond market.
This paper presents the design of a fund platform using principles of structured finance to enable greater capital market access for financial inclusion in India. A structured fund platform can tide over a tepid bilateral bond market and match the needs of investors and investees more efficiently. Central to the designing of a structured fund platform is quantifying the default risk in such structures. Accordingly, the paper specifically focuses on using the technique of Monte Carlo simulation to estimate risk. The results highlight the potential that structured fund platforms have in aligning disparate investor and investee needs. The paper has been divided into five sections. The first section gives an overview of the bond market in India. In the second section, we emphasise on the need for a structured finance approach to tide over frictions in capital markets. The third section provides the broad construct of the fund structure used in this paper to illustrate the methodology for risk estimation in fund structures. The fourth section gives an overview of the rating methodology used. The last section presents the output and concludes.