Page - 1

Introduction

What has sub-prime lending crisis to do with Microfinance? A first look of the title would give impression of gross disconnect between the two areas. The common thread between sub-prime lending and microfinance would become evident with the following deals –

Table 1: One of the first securitization deals in MFIs

Securitization figures appear way too modest however these would on the rise(indicative Table 2) and these deals have been happening in the microfinance industry since 2005 as indicated in the two deals above. Microfinance in India is still a fledgling industry traversing the distance between charity and for profit business model. Microfinance is still plush with debates about efficacy and profitability and we already see the participation of structured finance instruments. The recent sub-prime crisis is good example of mess created by mismanaging the structured finance instruments and we can draw a few lessons from this crisis situation so as to exercise caution.

Next

* Contributed by: -
Raghavendra Badaskar,
PGP II,
T. A. Pai Management Institute, Manipal.