Helping Microfinance Become Commercially Sustainable

Microfinance primarily refers to the making of small loans to low-income individuals and the poor, to enable them to start or expand small businesses. Currently, most microfinance loans are made through nonprofit microfinance institutions (MFIs) that receive donor money. However, donor-funded loans can account for only a small portion of the need. Microfinance analysts estimate, for example, that total market potential is $300 billion, of which only ten percent is currently being captured. Increasingly, the shortfall in funding is being met by commercial banks. But commercial-bank intermediation is expensive, with a global average effective interest rate (on commercial microfinance loans) reported to be as high as thirty-seven percent. I have separately argued that microfinance lending can benefit through securitization. Securitization envisions the creation of a special-purpose vehicle (“SPV,” sometimes called a special-purpose entity or SPE) that effectively replaces commercial banks as intermediaries of funds from capital market sources (such replacement being called “disintermediation”). Unlike commercial banks, the SPV is not intended to be profit-making. The SPV issues securities to capital market investors and uses the proceeds to acquire rights to payment, which are intangibles, under loans, leases, and other financial assets. These intangible rights, in turn, constitute the source of repayment of the SPV’s securities. Securitization can be applied to microfinance in two ways. The more straightforward way, which to some extent is already occurring, is to securitize an MFI’s donor-funded microfinance loans in order to regenerate funding for the MFI to make additional loans (“regenerative securitization”). A more innovative way would be to fund new microfinance lending through the capital markets without expensive commercial-bank intermediation (“transformative securitization”)

Music in electronic markets: an empirical study

Music plays an important, and sometimes overlooked part in the transformation of communication and distribution channels. With a global market volume exceeding US$40 billion, music is not only one of the primary entertainment goods in its own right. Since music is easily personalized and transmitted, it also permeates many other services across cultural borders, anticipating social and economic trends. This article presents one of the first detailed empirical studies on the impact of internet technologies on a specific industry. Drawing on more than 100 interviews conducted between 1996 and 2000 with multinational and independent music companies in 10 markets, strategies of the major players, current business models, future scenarios and regulatory responses to the online distribution of music files are identified and evaluated. The data suggest that changes in the music industry will indeed be far-reaching, but disintermediation is not the likely outcome

Shadow Banking and Regulation in China and Other Developing Countries

The rapid but largely unregulated growth in shadow banking in developing countries such as China can jeopardize financial stability. This article discusses that growth and argues that a regulatory balance is needed to help protect financial stability while preserving shadow banking as an important channel of alternative funding. The article also analyzes how that regulation could be designed

The 2011 Diane Sanger Memorial Lecture Protecting Investors in Securitization Transactions: Does Dodd–Frank Help, or Hurt?

Securitization has been called into question because of its role in the recent financial crisis. Schwarcz examines the potential flaws in the securitization process and compare how the Dodd–Frank Act treats them. Although Dodd–Frank addresses one of the flaws, it underregulates or fails to regulate other flaws. It also overregulates by addressing aspects of securitization that are not flawed