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The Microfinance Collateralized Debt Obligation: a Modern Robin Hood?

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  • Byström, Hans

    ()
    (Department of Economics, Lund University)

Abstract

The aim of this paper is to highlight a potentially very fruitful link between micro-entrepreneurs and the international capital markets. We discuss the role structured finance and credit derivatives could play in extending finance to micro-entrepreneurs on a much larger scale than today’s mainly non-commercial microfinance industry. The mechanisms of so called collateralized debt obligations (CDOs) are described and extended to the microfinance world. Finally, a hypothetical, but realistic, example of such a microfinance CDO (MiCDO) is used to discuss the implications of securitization and tranching of microcredits.

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Bibliographic Info

Paper provided by Lund University, Department of Economics in its series Working Papers with number 2006:14.

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Length: 22 pages
Date of creation: 18 Jun 2006
Date of revision: 21 Aug 2006
Publication status: Published in World Development, 2008, pages 2109-2126.
Handle: RePEc:hhs:lunewp:2006_014

Contact details of provider:
Postal: Department of Economics, School of Economics and Management, Lund University, Box 7082, S-220 07 Lund,Sweden
Phone: +46 +46 222 0000
Fax: +46 +46 2224613
Web page: http://www.nek.lu.se/en
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Related research

Keywords: commercial microfinance; structured finance; securitization; collateralized debt obligation; MiCDO;

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References

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  1. Bank for International Settlements, 2005. "The role of ratings in structured finance: issues and implications," CGFS Papers, Bank for International Settlements, number 23, July.
  2. Antje Berndt & Rohan Douglas & Darrell Duffie & Mark Ferguson & David Schranz, 2005. "Measuring default risk premia from default swap rates and EDFs," BIS Working Papers 173, Bank for International Settlements.
  3. Weiss, John & Montgomery, Heather, 2004. "Great expectations: microfinance and poverty reduction in Asia and Latin America," MPRA Paper 33142, University Library of Munich, Germany.
  4. Akerlof, George A, 1970. "The Market for 'Lemons': Quality Uncertainty and the Market Mechanism," The Quarterly Journal of Economics, MIT Press, vol. 84(3), pages 488-500, August.
  5. Ingo Fender & John Kiff, 2004. "CDO rating methodology: Some thoughts on model risk and its implications," BIS Working Papers 163, Bank for International Settlements.
  6. Dehejia, Rajeev & Montgomery, Heather & Morduch, Jonathan, 2012. "Do interest rates matter? Credit demand in the Dhaka slums," Journal of Development Economics, Elsevier, vol. 97(2), pages 437-449.
  7. Richard L. Meyer, 2002. "The demand for flexible microfinance products: lessons from Bangladesh," Journal of International Development, John Wiley & Sons, Ltd., vol. 14(3), pages 351-368.
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Cited by:
  1. Mader, Philip, 2011. "Making the poor pay for public goods via microfinance: Economic and political pitfalls in the case of water and sanitation," MPIfG Discussion Paper 11/14, Max Planck Institute for the Study of Societies.
  2. Dorfleitner, G. & Priberny, C., 2013. "A quantitative model for structured microfinance," The Quarterly Review of Economics and Finance, Elsevier, vol. 53(1), pages 12-22.
  3. Byström, Hans, 2007. "Structured Microfinance in China," Working Papers 2007:18, Lund University, Department of Economics.

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