November 2004 – IPDC Securitization of Assets in Bangladesh

Opening remarks – World Bank Senior Officer

"It is a great privilege for me to be here today to participate in the launch of the first ever asset securitization in Bangladesh. The idea of introducing asset securitization in this country originated born in 1999. The World Bank was looking at the problems faced by the non-bank financial institutions, or NBFIs, in mobilizing funds from the market.

Unlike the commercial banks … that can easily access deposits, but often can't on-lend these funds efficiently to viable borrowers, NBFIs typically have strong loan demand from good borrowers, but are perennially starved of funds.

It was at this time that the World Bank team, working with GOB on the design of Financial Institutions Development Project (FIDP), floated the idea that NBFIs might issue asset-backed securities.

The four-year journey to reach this goal has been rough and bumpy. There were tax and incentive problems, regulatory barriers, and knowledge and skill shortages to overcome. An international securitization expert was brought to familiarize the various actors with the concept of securitization.

I understand that all the PFIs under FIDP are preparing to issue their own asset-backed securities to mobilize funds directly from the market.

It is encouraging that several other financial institutions are also poised to float their own asset-backed securities. There is huge potential: housing finance companies can securitize their mortgages. Microfinance lenders can securitize their microcredits. Credit card companies can securitize receivables; the mobile phone companies their billings.

To make this instrument more popular and less expensive to issue, there are still a few issues for GOB to attend to: (i) removing the 1.5% stamp duty on issue and transfer of unlisted securities; (ii) lowering the rate of tax deducted at source on T-Bills to develop a secondary market; (iii) standardizing the regulatory and accounting treatment for securitization; and (iv) in due course, a securitization law.

I do hope these last few wrinkles will be worked out soon, so that the 'the financial instrument of the new millennium' can contribute its part to the broadening and deepening of financial markets in Bangladesh."

May 2008 – SME Asset-backed financing instrument: Opportunities in Europe - Bratislava, Slovakia

"The World Bank's Europe and Central Asia Region, in collaboration with the KfW Bankengruppe (KfW) and the World Bank Institute (WBI), is organizing a two-day conference to raise awareness of asset-backed financing mechanisms available for Small and Medium Enterprises (SMEs) in Europe. Asset-backed financing instruments present an opportunity to enhance financing to SMEs, which play a crucial role in Europe but are often credit-constrained. These mechanisms can increase SME financing by converting illiquid and high-risk SME related assets into tradable securities that have the creditworthiness of institutional investors. They have gained momentum in various parts of the world, often under the impulse of financial authorities, but remain underdeveloped in some parts of Europe. There are clear benefits in the development of asset-backed financing instruments in Europe. They provide additional sources of funding for SMEs, offer new investment opportunities to institutional investors, and help financial institutions manage their balance sheets, liquidity and risks. However, the recent market turmoil has highlighted the need to adequately regulate and supervise risks while fostering the development of innovative mechanisms. Conference overview: The conference will provide hands-on experience in the development of asset-backed financing mechanisms for SMEs, including supply chain financing solutions, reverse factoring, and the securitization of SME loans and receivables." It is hard to understand how fostering –and financing with public monies– a nonregulated risk transfer, perverse incentives-plagued, return-seeking, highly speculative, virtual money manufacturing system – the term was coined by the Brazilian President at the end of the G-20 meeting – has anything to do with the mandate to promote long term steady growth through productive, development-oriented investments. If the recent past has taught us anything, and "any" breed of multilateralism can make any sense to the developing world, a lot of things should change, such as public resource discretional use; intangible program- and project results, huge technical assistance costs; private-sector lending; public disclosure of private sector projects, just to mention a few, and all of which can easily be demonstrated through the approach used in this paper. The nature of the changes announced remains ambiguous. After all, international organizations voting power refurbishing is tantamount to political power shuffling – an idea apt to elicit some misgivings in the developed world. The developing world, however, has changed. Its weight in the world economy and trade is greater than before, and prompts it to demand greater political power. Four large developing countries – Brazil, Russia, India, and China – expect responses.

The author, Raúl de Sagastizabal, is an international consultant and an expert on policies and procedures of international public organizations.

(China.org.cn May 8, 2009)