I am happy to read in Financial Times that Finca International, the well known MFI (microfinance institution) is launching a new microfinance collateralized debt obligation (MiCDO) together with Deutsche Bank! This goes further to prove that microfinance, and particularly structured microfinance, has survived the crisis unscathed.
As we all know, the CDO has been one of the main scapegoats of the financial crisis. However, as I have mentioned frequently in this blog (see for instance Är ni trötta på låga bankräntor? or Bank regulation! ) I am one of those die-hards who actually have believed in CDOs (particularly microfinance ones) all through the crisis. My point is simply that it is not the instrument that is faulty, it is those who use it!
As the first academic in the world to discuss microfinance CDOs (Byström, H., (2008), The Microfinance Collateralized Debt Obligation: a Modern Robin Hood?, World Development. 36 (11), 2008, pp 2109-2126.) I am particularly happy to see MiCDOs coming onto the scene again. This particular Deutsche Bank - Finca microfinance CDO has a nominal size of $21 million and the pool of loans is allegedly made up of $500 loans to microentrepreneurs in Asia and Africa.
Interestingly, just as I describe in my article above (and in Dagens Industri in 2007, see picture) the tranching of the CDO, allegedly, has made this rather isoteric and seemingly risky pool of mini-loans in the third world appealing also for pension funds and the likes in the west. Interest rates will range from approximately 7.5% to 16% and that sounds quite nice to my ears!
In my dreams I run a hug endowment that is currently contemplating investing in this MiCDO! As a nice hedge to the rest of the portfolio (except for the old microloans that we already own of course.....).