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Pooling Resources
Elizabeth Wine
04/01/2005
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Microfinance specialists have mulled such a transaction for years, but myriad challenges stood in the way. Many recipient countries did not have enough loans to bundle, and dissimilar national regulatory frameworks made it difficult to create regional packages. The currency risk of these transactions is so thorny that it put off even such a philanthropically inclined risk taker as George Soros. He considered backing a securitization several years ago, but the need to ensure that small MFIs would not lose money from currency market fluctuations stymied him. That problem, and several others, remains nettlesome.
TOP VIEW
For decades, microfinance institutions in developing nations have made business loans to individuals. Now these lenders are pooling their loans and selling them as bonds to investors in the developed world. With the first deal of this kind less than a year old, observers wonder if these transactions can boost the capital available to microfinance programs. |
What Is Your Quest?
Securitization is the Holy Grail, according to Michael Swack, the dean of the School of Community Economic Development at Southern New Hampshire University. “It represents sophisticated financial engineering that will help microfinance institutions access capital markets,” he argues. “The question has been: How do we package our services to be attractive to outside investors?”
Turning loans for the poor into viable investments remains a challenge. Investor satisfaction with the BlueOrchard deal will be a benchmark for determining whether such philanthropy-investment crossovers will become more common. BlueOrchard certainly attracted an audience. It was oversubscribed—which means there was more demand than supply—and it sold out in an hour. The sponsors hope to raise an additional $40 million with a second issue this spring. The minimum level of investment for individuals will be $25,000.
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