Securitization

15 October 2010
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This guide introduces microfinance institutions (MFIs) to securitization as a potential source of financing. It does not provide an exhaustive description of all the nuances of securitization. Also there is no standard form for securitization documents as they vary depending on local laws and regulations, investors’ requirements, and structure of the process. Accordingly this guide should be used by MFIs as general guidance.

The first draft of a securitization agreement is the first step in a long journey. MFIs should recognize that this draft is just a base for negotiating with investors. There may be some conditions in agreements that are considered standard by most investors. However most conditions are specific to the transaction and should be amended to capture the unique features of the transaction.

This Guide includes a standard agreement and provides tips and suggestions to MFIs for negotiating and redrafting the conditions. MFIs should also use this Guide to help them understand the characteristics of securitization. As the MFI understands the process better, it can leverage that knowledge to negotiate preferential terms from investors. Theoretically almost all the conditions can be negotiated. But, in reality, this is determined by the bargaining ability of the MFI.