Dr. P.V. Viswanath



Economics/Finance on the Web
Student Interest


A structured finance approach to microfinance

by Dr. Kshama Fernandes, IFMR Capital


Click here to read the article.

Note: A Non Banking Financial Company (NBFC) in India is a company registered under the Companies Act, 1956 of India, engaged in the business of loans and advances, acquisition of shares, stock, bonds, hire-purchase, insurance business, or ROSCA. An increasing number of microfinance institutions (MFIs) are seeking non-banking finance company (NBFC) status from the Reserve Bank of India (the Indian central bank) to get wide access to funding, including bank finance. Generally, they are not allowed to take deposits from the general public and have to find other means of funding their operations such as issuing debt instruments (information adapted from Wikipedia)



  1. The author says: "most MFIs are overly reliant on banks and development financial institutions (DFIs) for funding." Why do you think this is so?
  2. What are the three characteristics of structured finance according to the Committee on the Global Financial System? Explain the importance of each of these three characteristics.
  3. What is the difference between direct and indirect MF securitizations?
  4. Why would cashflows on securitized MFI loans have a low correlation with cashflows from investments in other asset class, according to the author?
  5. Why are portfolios of MFI loans likely to be much more diversified than portfolios of non-MFI loans according to the author?
  6. One of the risks faced by an investor in structured mortgage obligations is pre-payment risk, i.e. the likelihood that borrowers might pre-pay their loans, especially when interest rates drop, thus increasing cashflow from the asset at a time when the investor would rather not have more cash to re-invest. However, the author believes that pre-payment risk is low with securitized MF loans. Explain why.
  7. Who are the potential purchasers of structured MF loans?
  8. Do you think microfinance securities constitute a new asset class? Explain why or why not.