Vineet Sukumar of the Institute for Financial Management and Research (IFMR) Capital has recently written a counter-argument to an article written by Daniel Rozas and Vinod Kothari and published by Microfinance Focus which argued that “microfinance securitization does not, in reality, separate ‘pool risk’ from ‘originator risk’ and hence should not be rated very differently from the originator of the portfolio.” In contrast, Mr Sukumar argues that “several structural mitigants have been built in to counter servicer risk…the MFI [microfinance institution] maintains a first loss cash collateral from the onset of the transaction…and…it is mandatory for MFIs to provide a detailed MIS [management information system data] on collections to the trustee with every payment. The Arranger and the trustee play a key role in terms of diligence of the MIS. This reduces the risk of fraud.”
The back-and-forth was precipitated by regulations proposed by the Reserve Bank of India that could greatly curtail the securitization of microloans, as reported by MicroCapital in 2009: https://www.microcapital.org/microcapitalorg-story-braking-securitization…
By Julia Korn, Research Associate
About The Institute for Financial Management and Research (IFMR) Capital:
IFMR Capital, previously known as IFMR Trust Guarantee Company, is a non-banking finance company based in Chennai, India. It aims to provide access to capital for institutions in sectors such as rural and urban financial services, rural infrastructure, agriculture and others. It also aims to develop markets for new asset classes, such as microfinance.
Sources and Additional Resources:
[1] Microfinance Focus. “The Fundamental Premise of Securitisation: The Microfinance Case Study” by Vineet Sukumar on July 14, 2010. http://www.microfinancefocus.com/news/2010/07/14/the-fundamental-premise…
MicroCapital. “MICROCAPITAL BRIEF: Reserve Bank of India Proposes Regulation for Securitizations by Microfinance Institutions” by Jennifer Shevock on July 12, 2010. https://www.microcapital.org/microcapital-brief-reserve-bank-of-india-pro…
MicroCapital Universe. The Institute for Financial Management and Research (IFMR) Capital. https://www.microcapital.org/microfinanceuniverse/tiki-index.php?page=IFM…
Browse the MicroCapital Universe and add your entry to the wiki at https://www.microcapital.org/microfinanceuniverse/
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