Microfinance Loan Obligations - Structured Finance for Microfinance Investments

This paper explores the concepts of structured microfinance investments and pooled financing for groups of microfinance institutions. The paper states that:

• Microfinance can be seen as a large market, with an opportunity for the investor to fill an important existing gap between a large unmet demand for financial services and a new emerging supply.
• Currently, a key objective of microfinance is to generate more commercial investment.
• Structured microfinance investments provide microfinance institutions (MFIs) with access to a broader investor base.
• The Microfinance Loan Obligations Platform (MFLO) provides a generic transaction structure and facilitates pooled financing for groups of MFIs. In such a structure:
  • A pool of term loans is granted to MFIs and such term loans are financed by issuing asset-backed notes in the capital market;
  • Lender (of the term loans) and issuer (of the asset-backed notes) is a Special Purpose Vehicle, which is the core of the platform.
• Another application of structured finance to microfinance may be the use of securitization mechanisms to MFIs.
• Ultimately the goal is to:
  • Establish microloans as an additional underlying asset class for securitization transactions;
  • Provide MFIs with access to the asset-backed securities financing market.
• Problems in this area could be addressed with a combination of conventional debt financing, combined with a synthetic microiloan securitization mechanism.