312 Harald Hüttenrauch and Claudia Schneider Such a profile has characterised some Central and Eastern European countries that are now EU member states. 18 On the other hand, cross-border securitisation is less appropriate for receivables denominated in local currency. By securitising local currency assets on a cross- border basis, the originator increases its dependence on international capital mar- kets with all its risks of interest rate, maturity and currency mismatches. The same concern arises for institutions that originate assets in foreign currency, but whose domestic customers are exposed to transfer and convertibility risk. This profile applies to many economies in Latin America or Eastern Europe in which the US dollar or the Euro are the dominant currencies. Onshore securitisations have dominated the development of the South African and several Asian markets. They are significantly increasing in Latin America (for example, in Argentina, Brazil, Colombia, Mexico, Peru, etc.) where in 2004 on- shore issuance surpassed offshore securitisation for the first time, amounting to more than twice the cross-border volume. 19 The main reasons for the impressive take-off of local ABS issuance are supportive tax, legal and regulatory reforms, and the increasing liquidity and activity in local bond markets. Similar develop- ments can be observed in China, and most structured finance experts expect the Chinese securitisation market to grow significantly. 20 Experience of domestic securitisations in emerging markets is relevant when assessing the potential for the securitisation of microfinance assets. From an origi- nator’s perspective, onshore securitisation is appealing since the institution can access local currency funding at matching maturities. Assets denominated in local currency are transferred to a domestic SPV which, in turn, issues local currency denominated ABS placed with local investors. Typically, the development of local ABS markets takes off with the securitisation of highly standardised receivables, such as mortgage loans, consumer loans and auto loans. Furthermore, onshore securitisations may, in most cases, be more economic and less risky than cross-border transactions. The cost of securitising in local markets will be influenced by various factors including transaction size, overhead cost of the deal, investor appetite for a specific asset class, and interest rates charged by the originator to the borrowers at the time of origination of the receivables. Due to the high overhead cost of international deals (with international rating agencies and international and local law firms involved), the average size of such offshore securitisations is possibly well above USD 100 million. In contrast, local securiti- sations can in some cases be worthwhile for the originator with deal sizes around USD 10 to 20 million. 18 Ibid, p. 2. In 2004 cross-border securitisation of local currency denominated assets were completed in Poland and Romania. 19 Fitch: “Structured Finance in Latin America’s Local Markets, 2004 Year in Review and 2005 Outlook”, March 1, 2005, p. 3. 20 HSBC Global Research: “Asian Securitisation – A new ABS market ready to unfold”, May 2005, p. 16. Securitisation: A Funding Alternative for Microfinance Institutions 313 Residential mortgage and consumer loan securitisations in developing countries offer good examples for MFIs contemplating a securitisation, as previously noted. Relevant cases include the mortgage loan securitisation programme of South Afri- can Home Loans Ltd. (The Thekwini Fund), residential mortgage loan securitisa- tions in Mexico (e.g. Su Casita), and consumer loan securitisations in South Africa and Mexico (Nedbank’s Synthesis programme and Fonacot). 21 Interesting exam- ples include local securitisations without a guarantee and locally rated servicers as well as unrated servicers backed by a rated back-up servicer. Requirements for Securitisation in Emerging Markets Typically, loan portfolios of MFIs consist either of local currency receivables or foreign currency denominated assets owed by local debtors. Prerequisites for on- shore securitisations in emerging markets are defined here, along with an explora- tion of the extent to which MFIs can meet such criteria. The requirements for cross-border securitisation are also briefly discussed. Country-Specific Aspects Inter-related factors determine the extent to which securitisations can be con- ducted in different countries. These factors include the depth of local capital mar- kets, the legal and regulatory framework, regulation of securities issued and regu- lation of securitisation itself. Depth of Local Capital Markets Securitisation will develop in a country only to the extent that local securities and debt markets have reached a certain level of diversification and maturity. 22 For instance, some securitisation structures require interest rate swaps, while others may lack sufficient investor demand for medium and long-term securities. Most domestic securitisation markets start with a demand from local pension funds, mutual funds and insurance companies for fixed-income instruments denominated in local currency with medium-term maturities of three to five years. Institutional investors can develop a meaningful appetite for such instruments only if they have liquidity in excess of that required by their local regulators. 23 Another considera- tion is that the formation of financial assets greatly depends on the stability of the domestic currency and the country’s sovereign credit outlook. Furthermore, 21 For more details on these projects refer to the respective rating reports from Moody’s and Fitch. 22 Moody’s: “Securitisation in New Markets: Moody’s Perspective”, September 5, 2006, p. 2. 23 Lee Maddin, International Finance Corporation (IFC): “Structured Finance in emerging markets”, in: Global Securitisation Review 2004/05, Euromoney Yearbooks, p. 3. 314 Harald Hüttenrauch and Claudia Schneider a reasonable degree of overall macroeconomic and political stability is also sup- portive to the development of a local bond and ABS market. 24 Most institutional investors prefer or are required to hold high quality assets. They first acquire mortgage bonds as an alternative to government and large cor- porate bonds. Given their collateralisation, mortgage bonds are considered low risk. In some cases, as in South Africa, institutional investors actively urged potential originators to issue mortgage bonds. In other cases, lobbying by investor groups led to legal changes that facilitated the issue of mortgage bonds. Once an ABS market takes off with RMBS, it is only a question of time before investors will buy somewhat riskier asset classes. In addition to ensuring sufficient investor demand and a supportive tax, legal and regulatory framework, an ade- quate capital market infrastructure including arrangers, clearing agents and stock exchanges are required for the creation of a securitisation market. 25 In most cases the involvement of a local credit rating agency acceptable to investors is also essential. In structured finance transactions, the local affiliates of international rating agencies are likely to have a competitive edge over independent domestic rating agencies, at least initially. Legal, Tax and Regulatory Framework It is important to explore fully whether, and under which conditions, the legal, tax and regulatory environment of a jurisdiction permit onshore securitisation. 26 Many countries have promulgated securitisation laws, giving strong impetus for the de- velopment of domestic markets (e.g. Brazil, South Africa). In other countries, securitisation developed following amendments of existing capital market laws (e.g. Mexico). Unfortunately, some countries have introduced special securitisa- tion laws but their scope has been too narrow for local markets to develop (e. g. Bulgaria, Poland, Romania, Ecuador). To support true sale securitisation, the main aspects which need to be analysed to determine whether a country’s legal, tax and regulatory framework is suppor- tive to the development of securitisation are: 27 24 Gabriel DeSanctis: “Guaranteeing progress”, in: International Financing Review, IMF / Word Bank Special Report, September 2004; and Fitch: “Structured Finance in Latin America’s Local Markets, 2004 Year in Review and 2005 Outlook”, March 1, 2005, p. 3. 25 Lee Maddin, International Finance Corporation (IFC): “Structured Finance in emerging markets”, in: Global Securitisation Review 2004/05, Euromoney Yearbook, p. 4. 26 Comprehensive information on the status of the legal and regulatory framework of securitisation is publicly available for many countries. For example, refer to Global Legal Group: “The International Comparative Legal Guide to: Securitisation 2006”, London 2006 (the guide is updated yearly). Refer also to http://www.globalsecuritisation. com, a website on the state of global securitisation and structured finance, sponsored by Deutsche Bank AG, and to http://www.vinodkothari.com/seclaw.htm. 27 Moody’s: “Securitisation in New Markets: Moody’s Perspective”, September 5, 2006, p. 10, lists are series of legal and regulatory issues to be addressed for a (first time) securitisation in emerging markets. Securitisation: A Funding Alternative for Microfinance Institutions 315 • Transferability of assets. It must be legally possible to transfer the assets from the originator to a third party, the SPV, and that loan agreements must allow for such transfers. In addition, the transfer must be insolvency proof. The successor’s ownership of the receivables must be immune to legal challenge if the originator becomes insolvent or bankrupt so as to assure investors that neither the assets, nor their proceeds on realisation, are available for distribution as part of the bankruptcy estate of the originator to parties other than the ABS investors. 28 Potential pitfalls in domestic legislation which could adversely affect an insolvency proof transfer include provisions that prohibit the transfer of assets or the assignment of the corresponding collateral or provide for burdensome and costly registration requirements, and those that require the borrower’s (prior) consent to the transfer or that require the explicit notification of the borrower. Finally, banking regulations that permit only licensed banks to hold loans originated by a bank hamper the development of securitisation. • Bankruptcy remoteness of the SPV. Local legislation must provide for the establishment of a bankruptcy-remote entity (i.e. one that is sufficiently protected against both voluntary and involuntary insolvency risks). To reduce voluntary bankruptcy risks (excluding fraud) for the SPV itself, legislation must make it possible, mainly by contract, to restrict the business purpose of the SPV and to limit the decision power of its management. 29 Moreover, to mitigate involuntary insolvency risks triggerable by third parties, transaction creditors agree to limit their enforcement rights over the asset pool and against the SPV by way of limited recourse and non-petition clauses in any agreement between the SPV and its creditors. It is crucial for these provisions to be enforceable under domestic legislation. • Taxes: In order to minimise potential tax liabilities of the SPV, issues such as withholding tax on the transfer of the underlying asset and/or on the payments by the SPV to investors have to be evaluated. Furthermore, issues relating to value-added taxes may also arise in connection with payments by the SPV to the originator in its role as servicer of the asset pool. Most jurisdictions deem SPVs and securitisation transactions to be generally tax- neutral, since their sole purpose is to administer the ABS and to channel the cash flows related to the transaction on a non-profit basis. 28 Fitch: “Securitisation in Emerging Markets: Preparing for the Rating Process”, February 17, 2006, p. 3. 29 Normally, the purpose of the SPV is restricted to the purchase of the asset, the holding of the assets for the benefit of investors (or other secured parties) and the issuance of tranched securities (debt instruments and equity) to investors in order to refinance the purchase. 316 Harald Hüttenrauch and Claudia Schneider • Regulation of the securities issued: The type of security that is most appro- priate for a securitisation has to be determined. In most cases there is a choice – different securities are regulated differently. Some jurisdictions limit the ability of institutional investors to invest in certain types of securities. Accounting and tax regulations also have to be considered. 30 • Regulation of securitisation: The extent to which domestic bank regulations require the local regulator to approve the securitisation transaction has to be clarified. Furthermore, the originator must determine, to the satisfaction of its auditors, whether a potential securitisation structure complies with national accounting rules and whether the particular transaction achieves the envisaged funding or equity targets. For example, accounting rules and bank regulations in many countries treat assets as truly sold only if transfer of the majority of risk and rewards has taken place and only if the originator does not retain too large a portion of the asset’s risk. 31 Country Risk and Country Ceiling In cross-border securitisations, if the national government imposes a moratorium on all foreign currency debts, the SPV risks default on the payment of interest and principal to the ABS investors. Therefore, country risk in the form of convertibil- ity, transferability and expropriation risk has to be assessed and mitigated. This may be achieved, for example, through a political risk insurance policy, an off- shore liquidity facility or guarantees provided by highly rated financial institutions such as international banks, monoline insurance companies and multilateral or bilateral financial institutions such as KfW. 32 In the past, without mitigation of country risk, the most senior ranking securi- ties issued in cross-border structured finance transactions generally could not command a credit rating superior to the sovereign bond rating (or sovereign ceiling). However, in spring 2006, rating agencies adjusted their methodologies to decrease the influence of a sovereign's long-term foreign currency rating on the ratings of cross-border structured finance transactions. 33 Based on empirical observations from recent financial crises, the general rationale behind this development is that many governments appear to be significantly less likely than in the past to impose measures such as payment moratoria on issuers or capital and/or foreign-exchange 30 Lambe, Geraldine: “Securitisation gives food for thought”, in: The Banker, 4 August 2003, p. 30. 31 Basel II stipulates many criteria for determining whether securitised assets are truly sold. 32 Fitch: “The Role of Multilaterals in Structured Finance”, March 16, 2006. 33 Refer to Fitch: “Existing Asset Securitisation in Emerging Markets – Sovereign Constraints”, May 12, 2006; Moody’s: “Securitisation in New Markets: Moody’s Perspective”, September 5, 2006, and to S&P: “Weighing Country Risk In Our Criteria For Asset-Backed Securities”, April 11, 2006. Securitisation: A Funding Alternative for Microfinance Institutions 317 controls, even in times of serious financial distress or upon default of the sover- eign entity. Obviously, governments are expected to behave differently, since the future costs of such actions to be borne by the economy are considered increas- ingly high, especially for countries with liberalised trade and capital accounts. In the new approach, rating agencies are now trying to estimate the probability of the government to impose a moratorium or to establish capital controls during a finan- cial crisis of the sovereign 34 – and no longer assume this to happen automatically. The agencies now take into consideration factors such as the overall political and macroeconomic situation, the soundness of the legal regime as well as the avail- ability of structural elements to mitigate the consequences of sovereign interfer- ence. These elements include such as offshore liquidity facilities and frequent sweeps of collections from the servicer’s onshore collection account to the SPV’s offshore account. Today, applying the revised approach, the maximum rating achievable for a senior note in cross-border structured finance transactions is capped at the “country ceiling for foreign-currency denominated bonds,” 35 which may be up to several notches above the respective sovereign rating of the country in question. Moreover, provided external credit enhancement is available to mitigate country risk (see above), it may be even possible to rate the senior note above the country ceiling. 36 Originator and Servicer Requirements Originator Motivation From the perspective of the originator, a potential securitisation must offer a posi- tive trade-off between costs and benefits. In emerging markets, the primary benefit consists of access to asset-based funding and equity. Depending on the profile of the originator’s balance sheet, additional benefits could include improved risk management such as through risk transfer, as well as better asset liability man- agement. Secondary benefits such as access to domestic capital markets and diver- sification of funding sources can also be important. 34 This more differentiated view is commonly referred to as “joint-default approach”. 35 This is the terminology of Moody’s. Fitch and S&P apply different terms for a similar concept. 36 For example, as of June 2006, Moody’s rated the Russian sovereign bond Baa2, whilst the “country ceiling for foreign-currency bonds” was at A2 (i.e. three notches above the sovereign). In June 2006, the first RMBS out of Russia (originator: JSC Vneshtorgbank) was closed and Moody’s rated the most senior tranche A1 (i.e. one notch above the country ceiling). “Piercing” the country ceiling was possible due to external credit enhancement in the form of an International Payment Facility provided by JSC Vneshtorgbank but guaranteed by IFC. Refer to Moody’s: “Russian Mortgage Backed Securities 2006-1 S.A.”, International Structured Finance, Europe, Middle East, Africa, New Issue Report, July 19, 2006. 318 Harald Hüttenrauch and Claudia Schneider Whether the benefits of a securitisation exceed its costs will depend on factors such as the direct cost of securitisation, the availability of alternative and cost- efficient funding and/or equity sources, and on the costs the originator incurs from transaction-related reporting and disclosure requirements. Moreover, the quantifi- cation of regulatory and economic capital relief achieved by the originator is becom- ing an increasingly complex exercise due to Basel II regulations and – in some cases – the revision of national accounting rules. Although preparation and im- plementation of a securitisation may constitute a major challenge for an originator, especially a first time issuer, the effort will be well rewarded as long as the origi- nator can offer a sufficiently large and well-diversified asset pool and is able to act as repeating issuer (i.e. to issue ABS on a continuing basis). Originator and Servicer Issues In any securitisation the rating agencies and investors involved will want to under- stand the objectives of the transaction. Furthermore, they will want to appraise the quality of both the originator and future servicer. Their main concern is that a situa- tion might arise in which the servicer would no longer be able to administer the securitised receivables properly. In most cases, the originator and servicer are the same entity, since the originator is appointed to service the loans on behalf of the SPV. In a securitisation with a revolving asset pool, investors also evaluate the seller’s capacity to originate new loans as the receivables in the asset pool amortise. During due diligence, investors and rating agencies normally require the origi- nator/servicer to demonstrate at least: 37 • a convincing financial track record and governance/ownership structure; • a clear definition of core markets and a good understanding of their competi- tiveness; • a sound corporate strategy for sustaining a current market position and for achieving growth objectives; • a qualified management team and skilled staff; • a rational organisation structure; • an appropriate and powerful management information system (MIS); • appropriate policies and procedures for underwriting, managing and monitor- ing loans, as well as procedures for the resolution of problem loans; and • a convincing purpose or motivation for the securitisation transaction. 37 Fitch: “Securitisation in Emerging Markets: Preparing for the Rating Process”, February 17, 2006, p. 3. Securitisation: A Funding Alternative for Microfinance Institutions 319 A technical requirement that servicers have to meet is the ability to separate each securitised loan from others within the asset pool and also from unsecuritised loans. This is important not only for transaction reporting but also for the origina- tor’s accounting. In essence, the originator has to qualify as a third party servicer. Although no longer part of the originator’s balance sheet, the securitised loans still have to be administered with respect to risk and data integrity as if they were loans belonging to the originator’s own account. Rating agencies or investors may also consider it necessary for a back-up ser- vicer to be appointed when the transaction is closed. The availability of qualified back-up servicers increases the investors’ comfort to the effect that they are ex- pected to step in if the rating of the servicer is downgraded below an acceptable level or if the servicer defaults. Rating agencies or investors could also require both the originator and the back-up servicer to be rated, at least on a national level. 38 Although unrated emerging market originators, especially capital market debutants, might find it difficult to provide a sustained track record in some of the key areas mentioned above, securitisation is still possible. If servicer risk cannot be otherwise reduced, investors and rating agencies would simply factor more risk into the securitisation, resulting in additional credit enhancement. More subordination for the senior tranche can be accomplished by increasing the sizes of the mezzanine and junior tranches, raising the average weighted funding cost for the originator. In addition, back-up servicers and potential government support for a servicer in default could also mitigate servicer risk. 39 However, rating agencies would take account of this only if potential government support is highly likely, for instance, due to the sys- temic importance of the originator. Loan Characteristics and Data Requirements Diversification and Standardisation The more homogeneous, diversified and granular a loan portfolio, the easier it is to securitise. Asset pools are homogeneous if their receivables have similar con- tractual terms and interest rates, probabilities of prepayment, default and recov- ery. 40 Therefore, standardised loans such as mortgage loans or even unsecured short-term microloans are much more suitable for securitisation than other loans. For example, the cash flow of a pool is easier to predict if loans are originated in accordance with standardised underwriting criteria and loan documentation. Diversi- 38 ibid, p. 3 39 Geraldine Lambe: “Securitisation gives food for thought”, in: The Banker, 4 August 2003, p. 31. 40 Fitch: “Securitisation in Emerging Markets: Preparing for the Rating Process”, February 17, 2006, p. 6. 320 Harald Hüttenrauch and Claudia Schneider fication refers to the dispersion of the asset pool’s exposure into many uncorrelated risk factors such as geographic region, economic sector or industry, etc. Finally, the asset pool is granular if every single asset contributes only a small amount of relative exposure (i.e. a large number of small components). Data Requirements In order to place ABS successfully with local or international investors, the origi- nator has to provide rating agencies – and to a lesser extent investors – with data illustrating the characteristics of the underlying assets and demonstrating their performance under certain recession and stress scenarios. According to Fitch, provision of data constitutes the major challenge for risk assessment or rating of an emerging market transaction. 41 Often, the data format used by the originator to administer a loan portfolio differs from the data essential for securitisation. When data are available and formats have been adjusted, originators find repeated secu- ritisation very efficient. Costs incurred in the collection of initial data are usually amortised across later transactions. The objective of data analysis is to predict expected loss, consisting of future defaults and losses of the receivables in the asset pool. Data requirements usually comprise: • Historical data: at least 3 to 5 years of default and delinquency ratios, recoveries and prepayments of the relevant portfolio; • Borrower data: ideally some kind of credit score in addition to geographic location, industry type, payment history, and financial data; • Pool data: original amount, outstanding balance, maturity, seasoning, interest rate, collateral, repayment schedule on a loan-by-loan basis. 42 If an originator cannot provide sufficient data, securitisation may still be feasible. Again, the rating agencies – and the investors – will make conservative assump- tions where limited or no data are available, requiring greater credit enhancement and a higher weighted average cost of funding to the originator. Additional efforts by the originator in data collection usually pay off in lower transaction costs. Furthermore, the originator must continue to provide data on the securitised portfolio on a monthly or quarterly basis during the lifetime of the transaction. Investors and rating agencies require periodic standardised reporting that enables them to monitor the performance of the pool. Reporting provides a basis for calcu- lating pool ratios that measure delinquencies or default rates against predefined benchmarks that trigger certain actions in the securitisation. 41 ibid, p. 5 42 ibid, p. 6 Securitisation: A Funding Alternative for Microfinance Institutions 321 Can MFIs Securitise Their Assets? Any MFI considering a securitisation must respond to the issues discussed above. In-depth analysis of country-specific issues has to be carried out at the local level in cooperation with lawyers, regulators and possibly accountants/auditors. In this section we explore criteria related to MFIs as originators and microloans as an asset class. Given the sophistication of securitisation instruments and the related data requirements, this section refers exclusively to leading MFIs. MFIs as Originators and Servicers Overall Characteristics The development of microfinance has been anything but uniform, creating a highly fragmented market. The divide between a small group of leading MFIs (or the top-tier MFIs) and thousands of MFIs with limited growth potential may deepen even further. An estimated 10,000 or more MFIs operate worldwide in very different institutional settings: tiny microloan programmes, sophisticated non-governmental organisations (NGOs) specialising in microfinance, commercial banks created specifically to provide the customer base of microfinance with a broad range of high-quality retail financial service choices, and commercial banks delivering microfinance products along with their traditional products. The major- ity of MFIs can be characterised as institutionally weak and heavily donor- dependent with little chance of achieving the scale that could diminish their de- pendence on grant funding. 43 The peer group of leading MFIs as defined here consists of about 150 to 300 MFIs considered economically viable. 44 These top-tier MFIs are professionally managed, have been operating in the market for more than five years, and origi- nate microloans and administer their portfolios according to generally accepted underwriting and servicing principles. Furthermore, many of these MFIs consis- tently generate very healthy profits. Finally, many are rated by international rating agencies or their local affiliates, and are also evaluated by companies specialised in MFI evaluation and rating, such as MicroRate Inc. based in Washington D.C., Planet Rating SAS in Paris, Microfinanza Rating srl in Milan or M-Cril in Gur- gaon, India. 43 Elizabeth Littlefield and Richard Rosenberg: “Microfinance and the Poor. Breaking down walls between microfinance and formal finance.” In: Finance & Development (2004): 38-40, p. 39. 44 BlueOrchard Finance s. a., a Geneva-based Microfinance Investment Advisory firm, expects the number of economically viable MFIs to grow to approximately 500 over the next few years. Refer to this web document at http://www.blueorchard.ch/en/micro- finance_institutions.asp. [...]... would further spark interest from institutional investors, provided that local regulations permit them to invest in microfinance assets MF CDOs are useful instruments to raise additional funding for MFIs while acquainting private investors to microfinance risk MF CDOs represent debt funding, which appears to be the inherent “shortcoming” of this instrument To support lending growth, gearing up the debt... structuring investor ensuring that the final setup was compatible with its capital markets development objectives.76 76 The fact that ProCredit Company B.V obtained a public rating was instrumental in providing the credibility to promote the project Potential investors interested in microfinance assets can obtain information and learn from this experience Securitisation: A Funding Alternative for Microfinance. .. fully integrated into the financial markets Recent Developments in Securitising Microfinance Assets As noted previously, securitisation opens up new opportunities for refinancing an ever-broader range of assets and to obtain equity finance In spite of the complexity of the financing technique, the microfinance industry has successfully begun to seize such opportunities in 2004 The following section gives... located in 7 countries, mainly in Latin America.70 Developing World Markets LLC (DWM), an invest65 Ananth, Bindu: “Financing microfinance – the ICICI Bank partnership model”, in: Small Enterprise Development, Vol 16 No 1, March 2005, p 64 66 The portfolio used in the second transaction did not originate with Share, but was acquired from Basix, another Indian MFI See: http://www.businessweek.com/magazine/... new equity.47 For the leading MFIs, access to funding and the cost of debt and equity financing vary according to their legal form, financial strength and geographic location Rapidly growing loan portfolios and increasing competition in local markets are pushing MFIs to reduce their funding costs However, within the group of leading MFIs, many institutions still do not have banking licences However, to... often face restrictions in obtaining commercial funding on a continuing basis Frequently, non-deposit taking MFIs borrow from local commercial banks, often at expensive rates and with cumbersome collateral requirements established by their local banking regulator Increasingly, they also borrow from the steadily increasing number of debt and equity funds, the so-called microfinance investment vehicles (MIVs)... certificates to investors representing undivided beneficial interest in the underlying assets At the closing, and thereafter every six months, the SPV issues 82 For a brief description of the transaction refer to Zaman, Shams and Kairy, S.N.: “Building Domestic Capital Markets: BRAC’s AAA Securitization”, in: MicroBanking Bulletin, Issue 14, Spring 2007, Microfinance Information Exchange, Inc p.13-15 ... and/or bilateral and multilateral financial institutions or microfinance investment vehicles (MIVs) are fully utilised On the other hand, for investors in the capital markets the creation of ABS collateralised by microfinance assets such as loans to MFIs is a way to gain exposure to the risk of MFIs, at least indirectly Since MFIs have not issued corporate bonds in international capital markets yet,... example for MFIs considering a securitisation 57 Despite having invested millions of USD – including grant funding from development agencies - to develop IT platforms, many leading MFIs still do not present historical time series performance data, including loss data 58 Anecdotal evidence suggests that during Indonesia’s banking crisis in 1998 the default rates of Bank Rakyat Indonesia (BRI) microloans... transaction reporting while maintaining the quality of accounting standards MFIs’ information systems must be capable of separating each securitised loan from others within the asset pool, on a loan-by-loan basis tracking delinquencies, defaults, cash balances, prepayments and restructurings as well as managing information related to its own unsecuritised assets Probably, even leading MFIs would have . Review and 20 05 Outlook”, March 1, 20 05, p. 3. 25 Lee Maddin, International Finance Corporation (IFC): “Structured Finance in emerging markets”, in: Global Securitisation Review 2004/ 05, Euromoney. countries, mainly in Latin America. 70 Developing World Markets LLC (DWM), an invest- 65 Ananth, Bindu: “Financing microfinance – the ICICI Bank partnership model”, in: Small Enterprise. that of SME or corporate loans, 58 at least as long as microfinance is not fully integrated into the financial markets. Recent Developments in Securitising Microfinance Assets As noted previously,