Paper
BRAC Microcredit Securitization Series I: Lessons from the World's First Microcredit Backed Security (MCBS)
This paper examines lessons learned from first microcredit securitization deal
24 pages
This paper discusses lessons learned from the BRAC Microcredit Securitization Series, the world's first securitization of microcredit receivables. The paper discusses:
- The transaction rationale that convinced BRAC to go forward with the securitization;
- Political economy considerations that went into arranging the transaction;
- The transaction structure, and the various data and logistical constraints that the final structure addressed;
- BRACs microcredit portfolio data risks;
- The performance of the bond;
- Credit enhancements that were built into the structure.
In conclusion, the authors relate the following lessons from the transaction, and also ideas for the future.
- There is a need to have exhaustive information on borrower characteristics to enable adequate analysis of risk;
- To collect information about its members and their households, BRAC needs to tap into the information already available from its healthcare and education programs;
- Investors need to be more flexible in the conditions they place on future securitizations, they should allow risk profiles of the borrowers to guide optimal structures;
- MFIs need to share information about borrowers with each other, so that they can better understand the risk profiles of their own borrowers;
- An increase in frequency of updates of information from the actual collections to the head office would reduce investor risk and help BRAC improve its cash-flow management.
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