Microfinance Securitization = Transformation

John Gage

14 March, 2007

The uncertainty in the residential mortgage industry has been an important topic of conversation over the past few months. The residential mortgage market is now one of the largest in our economy. One large component of this market is the securitization of these mortgage loans.

According to the Commercial Mortgage Securities Association, "in the roughly 35 years that residential mortgages have been securitized, about 55 percent of the total single family loans outstanding have been packaged into residential mortgage backed securities." One of the primary reasons that Americans can get a residential mortgage at such affordable interest rates is due to the enormous amount of capital in the market that invests in bonds backed by residential mortgages.

So I am sure you are wondering, what does this have to do with microfinance. I truly believe that in order to bring the millions of people in our world out of poverty, we need to find a cost effective way to tap into the capital markets to fund microfinance.

The securitization of microloans is already being performed by groups such as BlueOrchard, however I do not think that many people know that this is going on, nor do they know the impact that it could have on the industry.

This post is the first in a series where I will begin discussing microfinance securitization, the impact that I feel it could have on our world, and the challenges that we face in this area.

My prayer is that it would spur discussion on this topic and reveal different solutions and ways that millions of dollars can be invested in microfinance through the capital markets. I also pray that God will bless the microfinance industry and that most of all, we can use it to further his Kingdom.