Scandinavian Working Papers in Economics

Working Papers,
Lund University, Department of Economics

No 2006:14: The Microfinance Collateralized Debt Obligation: a Modern Robin Hood?

Hans Byström ()
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Hans Byström: Department of Economics, Lund University, Postal: Department of Economics, School of Economics and Management, Lund University, Box 7082, S-220 07 Lund, Sweden

Abstract: The aim of this paper is to highlight a potentially very fruitful link between micro-entrepreneurs and the international capital markets. We discuss the role structured finance and credit derivatives could play in extending finance to micro-entrepreneurs on a much larger scale than today’s mainly non-commercial microfinance industry. The mechanisms of so called collateralized debt obligations (CDOs) are described and extended to the microfinance world. Finally, a hypothetical, but realistic, example of such a microfinance CDO (MiCDO) is used to discuss the implications of securitization and tranching of microcredits.

Keywords: commercial microfinance; structured finance; securitization; collateralized debt obligation; MiCDO

JEL-codes: G15; G21; O16; R51

22 pages, First version: June 18, 2006. Revised: August 21, 2006.

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