Developing securitization-enabling financial infrastructure in emerging markets: a case-study of Zimbabwe

Abstract

This legal study identifies through a case-study of Zimbabwe the range of essential legal reforms an emerging market should implement to establish financial infrastructure that enables the structuring of securitization transactions and the prevention and management of risks – such as those highlighted by the 2007 global financial crisis – that can arise from securitization transactions. The study analyses: (i) laws regulating or relating to prudentially regulated firms that typically use securitization to refinance; (ii) corporate and trust laws to identify legal structures which can be utilised as securitization special purpose vehicles; (iii) the Roman-Dutch law of sale to determine whether it permits the true-sale of financial assets; (iv) various legal risks, including substantive-consolidation, veil-piercing, foreclosure, insolvency and tax risks; (v) the dispute resolution framework; and (vi) the structured finance risk mitigation properties of Zimbabwe‘s financial market regulatory framework. The study concludes that Zimbabwe‘s legal system permits most of the contractual arrangements that constitute a basic securitization transaction. However, its financial services regulatory and gatekeeping framework - which must be reformed - is rudimentary and ill-suited to preventing and managing systemic risks that can arise from securitization. This is the first comprehensive academic study which investigates the extent to which the Roman-Dutch legal system enables the various contractual arrangements that constitute a securitization transaction. It also presents an analytical model for reviewing the securitization-enabling characteristics of emerging markets‘ legal systems and the securitization risk mitigation properties of their financial infrastructures