Paper
Microfinance Loan Obligations - Structured Finance for Microfinance Investments
Do microloans have the potential to become a new asset class?
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This paper explores the concepts of structured microfinance investments and pooled financing for groups of microfinance institutions. The paper states that:
- Microfinance can be seen as a large market, with an opportunity for the investor to fill an important existing gap between a large unmet demand for financial services and a new emerging supply.
- Currently, a key objective of microfinance is to generate more commercial investment.
- Structured microfinance investments provide microfinance institutions (MFIs) with access to a broader investor base.
- The Microfinance Loan Obligations Platform (MFLO) provides a generic transaction structure and facilitates pooled financing for groups of MFIs. In such a structure:
- A pool of term loans is granted to MFIs and such term loans are financed by issuing asset-backed notes in the capital market;
- Lender (of the term loans) and issuer (of the asset-backed notes) is a Special Purpose Vehicle, which is the core of the platform.
- Another application of structured finance to microfinance may be the use of securitization mechanisms to MFIs.
- Ultimately the goal is to:
- Establish microloans as an additional underlying asset class for securitization transactions;
- Provide MFIs with access to the asset-backed securities financing market.
- Problems in this area could be addressed with a combination of conventional debt financing, combined with a synthetic microiloan securitization mechanism.
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