The World Bank recently approved a project to encourage term lending in Bangladesh that has the securitization of leases and loans at its center. "The project will contribute to the speed and efficiency of industrial growth in Bangladesh," according to Alfredo Dammert, a senior private sector development specialist at the bank.
Dammert explained that a perennial problem for encouraging lending in countries like Bangladesh is that when money provided by agencies such as the World Bank dries up, so does the lending, as the financial institutions find it difficult to raise funds on their own.
"Some of the institutions that merit our support have been very good in term lending, but have not been successful in securing funds ... so securitization was the way that was most promising to solve that problem," he said.
To do this, the project's $45 million ($40 million of which comes from the World Bank, with the remainder from Bangladesh's government) is divided into credit, bridge and stand-by facilities.
The $28 million credit facility advances the money, through the central bank and other second-tier banks, to eligible financial institutions for them to pass on as term lending to fund project and infrastructure financing such as the building or expansion of factories and provide equipment leases.
The bridge and stand-by facilities (together worth $17 million) then support the issuing of collateralized lease and loan obligations, via a commitment from the World Bank (after approval of the deal) to buy any unsold portion of a securitization.
The bank expects that the vast majority of the deals will be placed with local institutional investors, however. "The public commercial banks and also the insurance companies have a lot of liquidity and we are thinking about tapping them through private placements," Dammert said.
Dammert added that the World Bank would also soon advise on how best to encourage the development of a local capital market. "The project will start to develop rules and regulations to encourage the commercial paper market, but that is not something that will happen immediately," he said.
The International Monetary Fund is also advising on the best way to develop the government bond market and, in a separate project, the World Bank and other agencies have been examining the use of securitization to help social finance companies, such as Grameen Bank, increase the lending of so-called micro-credits.