Some additional comments:
1. With the financial crisis even the bigger MFIs who were rolling in money a year back are finding it difficult to raise debt and also equity. Securitization helps with their debt needs and also reduces the need for them to raise equity. That was incidentally the original purpose for which mortgage securitization was introduced. The cost of equity is high ~ 25 %, hence securitization does add value. Eventually securitizing a part of the portfolio will reduce the cost of capital and interest rates for borrowers.
2. Indiscriminate securitization and creating exotic products can be harmful. One can reduce the moral hazard by having the MFI deposit a first loss default guarantee with the security issuer and by making statistics available and monitoring the performance of the microloan portfolio securitized. The rating should be derived on such factors over the long term.

On the last part, with United Prosperity we do guarantees. With a guarantee we facilitate local linkages between MFI and Bank. Further the impact for the social guarantor is higher as $1 in guarantee could result in $2 to @5 in loans. There is also no foreign exchange risk for the social guarantor and MFI.

Thanks

Bhalchander

1) They don’t need more money – the good MFI’s are rolling in it.
2) Securitization will remove the incentives for MFIs to make good loans. In other words, the low default rates – which seem so certain right now – will likely rise.

Bottomline, securitization leads to a moral hazard, and unless there is a solution to that, it remains a bad idea.

I looked at your website, btw – very interesting concept. Is it similar to Kiva, or goes further?

Check this : http://www.pmi-us.com/media/pdf/news/guttentag.pdf

Bhalchander

Securitization will help in greater fund availability for MFIs. After the financial crisis, MFIs are finding it pretty difficult to raise bank debt.

Blaming securitization alone for the financial crisis is not correct. Please check this article for a good analysis on some of the aspects of the mortgage meltdown: http://www.inman.com/buyers-sellers/columnists/jackguttentag/mortgage-industry-struggles-manage-default-risk

Bhalchander