Tuesday, May 06, 2008

Microfinance and Sub-prime - from India Development Blog

India Development Blog, a blog by researchers at the Institute for Financial Management and Research, compares securitization of Microfinance loan portfolio and onselling them with similar things that have happened with Sub-prime mortgage in USA. Most notable quote is
the worry is that MFIs that have securitized their portfolios and banks, which have lent money through the SHG-bank linkage program no longer have the incentives to ensure quality. The intention is that these financial instruments are designed with these issues in mind, and they are able to mitigate these problems, but in reality, that is not often true, as we have seen from the subprime mortgage crisis.
If would be interesting to know from the MFIs that have done securitization deals in India, how they keep up the quality of loan collection, and debt restructuring when they find defaulting likely to happen.

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