Despite the current economic climate, a recent Standard & Poor's research report found that remittance securitization and securitization of other future flow receivables in emerging markets are performing well, bucking the trend in global credit markets.
In a 2005 paper by Suhas Ketkar and Dilip Ratha, the authors found the securitization of future remittances and trade, tourism, credit card and other future receivables (together called "Diversified Payment Rights" or DPRs) are a useful tool that can help developing countries maintain access to international capital markets especially in times of crisis.
Dilip’s research as well as the World Bank’s 2006 Global Economic Prospects report, emphasizes that one of the reasons for the robust performance of this asset class is the "countercyclical" nature of remittances.
The S&P report backs this up by stating, "Some of these, such as worker remittances, also offer the benefit of countercyclical performance: that is, their flows often increase when domestic economies weaken...Investors often value worker remittances for their countercyclical nature: that is, workers typically send more money home during periods of economic crisis in their native countries."
A typical remittance securitization transaction is in the investment grade (BBB- or higher) category since future flows are heavily "over collateralized". S&P reports that it would take a huge slowdown in future remittances (of more than 95 percent) for a typical remittance securitization to default. This makes them a safe bet for "buy and hold" investors such as pension funds and institutional investors.
Join the Conversation