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Landmark finance deal for Bangladesh’s poor

Michael Jarvis's picture

BRAC, the renowned NGO based in Bangladesh, has helped create another groundbreaking financial product with the world’s first micro-credit securitisation programme. While microlending operations have proliferated in recent years, securitization had been difficult to arrange as most microcredit loans are typically so short term. However, this deal structured by RSA Capital, Citigroup, the Netherlands Development Finance Company (FMO) and KfW of Germany provides $180 million USD of financing over six years, helping it to make small loans to some of the poorest people in the world, who are often ignored by commercial banks. Under the program, BDT 1 BN (US$15mm equivalent) will be disbursed every six months to BRAC, with a maturity of one year. Mr. Fazle Hasan Abed, Chairperson, BRAC, claims:

“We have brought the global financial markets to the doorsteps of nearly 1.2mm households in Bangladesh. As one of the largest financing efforts ever dedicated to advancing poverty focused microcredit, this is a landmark for the micro finance industry.”

If this works well it might prove a model to expand financial services to the poor and strengthen local capital markets. Read more.

Comments

We read that “The transaction required the creation of a software to track a dynamic pool of receivables” and by going to the developers MF Analytics home page we also see that they "assist institutions and investors, in deciphering risk via extensive data mining”. Do we not get the feeling that the financial sector is here being advanced thanks to a process somewhat similar to that of developing vaccines by researching the biodiversity of a tropical jungle? That said let me take the opportunity to quote again from my Voice and Noise: BASEL and microfinance Most of our old banks (in developing countries) were doing micro-financing through their small local branches where the local bank manager knew everyone and could even call up the borrower’s mother to remind her of the importance of her son’s commitment. Those loans never caused any bank crisis but were nonetheless almost prohibited by the work of Basel regulators that required that all loans should be such that they could be monitored by bank officials’ continents away—without access to mothers. In this sense, our efforts to develop new micro-financing entities are (in part) just reconstructing what Basel helped to demolish.

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