Micro-finance
Hey guys,
For ten months now, I've been working on a financial product that I call MICROSAFE (lame name, but whatever). I've consulted a few professors at target and international schools about my work, they said that they liked the idea but they did not do much with it. That leads me to believe that they may just have been polite considering my age.
It suddenly occurred to me that I could get a second opinion on my idea from bankers on WSO. If you think my idea is terrible, flame it. I've spent too much time on this project already; I'd rather know that I've wasted my time and cut my losses than continue down this path fruitlessly. Here is a synopsis of my principle argument (I took out all the explanation stuff since you guys know how securities work better than I do):
Collateralized Mortgage Obligations(CMOs) are not inherently risky as certain news channels would have us believe. They failed because the commodity securatized, mortgages, was unstable, not because of the CMO structure itself. If Micro-Finance loans were securatized, since repayment rates are stratospherically high, they would make for a very safe investment for Mutual Funds and other institutions looking for a safety net. Plus, firms are looking for some good PR, nothing says, "forget about my bonuses" than handing money over to the disadvantaged. So even though returns may be lower than traditional safe investments, I think there is great incentive in PR value alone. But remember, Micro-Finance loans, if properly targeted, can also be high yielding loans. So both security and steady returns are propagated by this system.
Obviously, I put in a lot more research proving what I just said above with examples and what not, and thinking about government structures, sources of funding, the macro-economic benefits to countries that receive this, the way in which this new system will complement or conflict with the traditional Micro-finance system,incentives for people to fund such a venture over other safe investments such as bonds and what not, but I that is a hell of a lot longer and unnecessary. I think the blurb above summarizes my main goal. Basically, I ripped off Lehman's idea and tried to do something good with it.
Be harsh, be very harsh.
I've had a similar idea for a really long time. There are a few issues with this though: first off, micro finance loans are really small so you would have to securatize a lot of them to make a bond of reasonable value. I think a better idea would be to securatize the loans locally and have an local mutual found type vehicle that would take deposits from the poor and invest them in smaller tranches of microfinance securatized bonds. There is a big issue with the poor not being able to save that is probably as big if not bigger than the issue of the poor not being able to borrow. As far as selling to "western" investors, you could offer a solid rate of return through equity sold in your micro finance shop as well as firm debt. I think these assets would be attractive to investors because they aren't really correlated with the broader market. I think Citi has done some work in microfinance securatizations but I'm a bit shady on the details.
BlueOrchard Finance pioneered microfinance securitization. They've done three deals: BOMS1 BOLD1 BOLD2 Read more about them here: http://www.blueorchard.com/jahia/Jahia/pid/462
Good idea on your part, but it's already been done. Maybe you can add a twist? To be honest, though, I'm surprised you spent 10 months on this and never ran across any of the three products from BlueOrchard.
Isn't this the same thing:
http://www.dwmarkets.com/investment-management/structured-investments/
?
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