Microcredit Securitization

Microcredit and microfinance can be included in the branch of ethical finance that supports the struggle against poverty and financial exclusion. The term ‘microfinance’ is usually used to identify those financial services that are offered not only to clients with low income or none, but also to individuals who have difficulty in accessing basic financial services. The term ‘microcredit’ refers to small loans issued to individuals who are either poor or excluded from the financial system, and who lack traditional collateral; microcredit is usually granted in order to finance microentrepreneurial activity, and is often associated with technical support services and nontraditional collateral. According to this approach, microcredit is identifiable as a product of microfinance, and qualifies as an instrument in the struggle against poverty and financial exclusion, both due to the characteristics of the beneficiaries and to the technical and economic attributes of the instrument. The recent economic crisis has brought to the attention of European policymakers the debate on poverty and financial exclusion; in this context, microcredit is an instrument that has become highly regarded both by single states and by the European Commission. The search for resources to dedicate to microcredit has created the need for an alternative funding model specifically tailored to inclusive finance. Structured microfinance, and in particular microcredit securitization, can become a tool that is useful in achieving this goal; structured microfinance has already undergone experimentation in developing countries – but it is almost unknown in industrial countries, and in Europe in particular. In this context this paper, by analyzing the principal microcredit securitization programs currently implemented, aims to define a new and detailed taxonomy of the microcredit securitization structures that will serve both to identify the more suitable model for the European microcredit market and to delineate the risks and benefits related to the implementation of microcredit securitization in industrial countries. Our analysis may be found useful by the European practitioners and policymakers involved in the microcredit sector. The paper is divided into three parts: the first provides an overview of poverty and financial exclusion worldwide and in Europe; the second delineates the typical traits of microcredit and asset-backed securitization; the third proposes a new taxonomy of the microcredit securitization structures and its possible application to the European context.