Structured Products for Collateral-free MSME Lending

Structured Products for Collateral-free MSME Lending

Structured Products for Collateral-free MSME Lending

Background:

While lending against movable assets such as inventories, receivables, movable plant and equipment and vehicles, banks insist upon additional collateral such as land, building and third party guarantees. This deprives many borrowers, especially the MSMEs in getting adequate bank finance, since they are not in a position of offer the additional collateral. Similarly, start ups and MSMEs with relatively weak financials find it difficult to get bank finance. In the services sector, a major part of the assets of the borrowers may consist of intangibles, such as patents, copyrights, franchises, etc. Banks are reluctant to finance the intangible assets. Movable assets based lending (MABL) is a technique through which banks can successfully lend against movable assets without insisting upon additional collateral. This is done through structured lending products that enable better control over the primary collateral and borrower’s cash flows. Supply chain financing, warehouse receipt financing, factoring are some examples of such products.

Program Objectives:

To enable participants to:

Understand and appreciate difference between traditional ‘Balance Sheet Based Lending’ and ‘Movable Assets Based Lending’ (MABL)

Identify business opportunities for MABL, especially to MSMEs

Ensure quality MABL portfolio through properly structured products, effective monitoring strategies, better cash flow control and other risk mitigation strategies

Program Coverage:

Needs of MSMEs for funding against movable assets

Key characteristics of MABL

How MABL is different from traditional balance sheet based lending

Circumstances under which MABL is preferred over balance sheet based lending

Use of MABL in financing start ups and borrowers with weak financials but steady business prospects

MABL products for working capital such as over draft, warehouse receipt financing, supply chain financing, factoring, reverse factoring, etc.

Other MABL products such as equipment finance, leasing, etc.

Lending against intangible assets

Underwriting practices for MABL: why managing collateral is central to MABL? Follow up and monitoring strategies, involving outside agencies, leveraging ‘Information and Communication Technology’

Risk mitigation strategies for MABL

Prevention of frauds through field examination, due diligence, etc.

Enabling environment for MABL

Above mentioned topics will be supported by exercises/case studies and experience sharing

Duration: 2 Days

Target Group – Those working in corporate, mid-corporate and SME lending with about two years’ experience in lending. Those working in ‘credit risk management’ and ‘internal audit’ would also find the program useful.

Trainer: Dr. Satish Shinde