The structured finance approach has given MFIs access to a new class of debt investors, thereby reducing over-dependence on traditional sources of funds. This therefore enables risk transfer over a larger gamut of financial institutions and also provides access to mainstream capital market investors. The need for continuous and reliable sources of capital is critical for growth and sustenance in this sector.
Kshama Fernandes of IFMR Capital has recently written an article “A structured finance approach to microfinance” that was published in Securitisation & Structured Finance Handbook 2011/12 by Euromoney Yearbooks, where she explains the structured finance approach to the microfinance asset class in great detail.
“The success and sustainability of the structured finance approach in the microfinance sector depends on the high-quality origination of loans, appropriate incentives for all parties to a transaction and continuous monitoring of the portfolio and originator. Transparency and adequate disclosures ensure that market players act responsibly and the best originators are recognised. Finally, a strong regulatory framework that promotes innovation while ensuring transparent reporting, sufficient accounting mechanisms, prudent exposure limits and effective risk management is critical.”
With lucid explanantions and vivid examples of single originator and multi-originator securitisations, the article is a must read for anyone interested in microfinance.
Click here to download the complete article.