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The Microfinance Collateralized Debt Obligation: a Modern Robin Hood?

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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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  • Byström, Hans, 2006. "The Microfinance Collateralized Debt Obligation: a Modern Robin Hood?," Working Papers 2006:14, Lund University, Department of Economics, revised 21 Aug 2006.
  • Handle: RePEc:hhs:lunewp:2006_014
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    References listed on IDEAS

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    1. Antje Berndt & Rohan Douglas & Darrell Duffie & Mark Ferguson, "undated". "Measuring Default Risk Premia from Default Swap Rates and EDFs," GSIA Working Papers 2006-E31, Carnegie Mellon University, Tepper School of Business.
    2. 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.
    3. Bank for International Settlements, 2005. "The role of ratings in structured finance: issues and implications," CGFS Papers, Bank for International Settlements, number 23.
    4. 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.
    5. John Weiss & Heather Montgomery, 2005. "Great Expectations: Microfinance and Poverty Reduction in Asia and Latin America," Oxford Development Studies, Taylor & Francis Journals, vol. 33(3-4), pages 391-416.
    6. Ingo Fender & John Kiff, 2004. "CDO rating methodology: Some thoughts on model risk and its implications," BIS Working Papers 163, Bank for International Settlements.
    7. George A. Akerlof, 1970. "The Market for "Lemons": Quality Uncertainty and the Market Mechanism," The Quarterly Journal of Economics, Oxford University Press, vol. 84(3), pages 488-500.
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    Cited by:

    1. Byström, Hans, 2007. "Structured Microfinance in China," Working Papers 2007:18, Lund University, Department of Economics.
    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. 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.

    More about this item

    Keywords

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

    JEL classification:

    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • O16 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment; Corporate Finance and Governance
    • R51 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Regional Government Analysis - - - Finance in Urban and Rural Economies

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