Securitization : a platform for organic economic growth in emerging markets : authored

Abstract

One of the keys to building a solid economy is the existence of a long term debt market. Long term borrowing is crucial for personal home ownership, the creation of critical infrastructure, and the development of major real estate projects. Most emerging market economies do not have a long term debt market due to numerous factors including political instability, hyper-inflation, and low perceived credit quality. In the light of lending debacles in countries like Argentina and Venezuela, investors tend to punish banks who seek to lend in emerging market economies. For these reasons and more, many lending institutions shy away from lending on a long term basis in these regions. The perceived risk far outweighs the prospect of high returns. The resultant lack of a long term debt market leads to a stagnant or declining economy. Borrowing on a local level too is very difficult as it is cost prohibitive and the prospect of currency risk makes long term lending almost impossible even on a local level. One of the mechanisms used to "spread the risk" of long term debt is the securitization market. This thesis is structured to look at some of the benefits and externalities of securitization as well as look at how a securitization discipline could fit in an emerging markets quest for growth and stability. Additionally, the thesis will identify several reasons why securitization is not commonplace in most emerging markets and identify potential remedies so that securitization can be managed. Finally, this thesis will suggest ways that multilateral agencies and other would-be lenders can help emerging nations succeed without having the massive overhang of costly debt.