August 21, 2019
J.P. Morgan has led a deal to increase lending to entrepreneurs in developing countries, most of whom are women – part of efforts to help leftbehind communities benefit from economic growth.
The Corporate & Investment Bank worked with Swiss impact investor responsAbility to arrange a $175 million securitization of loans, enabling 26 microfinance organizations in 17 countries to increase lending to individuals and small businesses that do not have access to traditional banking providers.
What is securitization?
Securitization is a financial product where a bank pools together loans and passes on their related cash flows to investors as securities. Investors typically choose from a range of assets based on their risk appetite.
These microfinance lenders in turn will offer loans to 30,000 small businesses and some 5.6 million individual borrowers, supporting growth, creating jobs and helping communities to thrive.
The deal is the first securitization of its kind since the financial crisis, the first impact investment product out of the CIB and opens up the social impact market to mainstream investors.
Normally, microfinance organizations are too small to access the capital markets. By pooling their borrowing needs, however, this type of transaction gives them the necessary scale. At the same time, it enables investors to contribute to financial inclusion in developing countries, earn a commercial return, and diversify their exposure across several borrowers and geographies.
As the appetite for socially responsible investments continues to grow, J.P. Morgan is looking to strengthen ties between impact investors and global capital markets.
Teams across the CIB including Sustainable Finance, Illiquid Credit Syndicate, Securitized Products Group and Public Sector Banking worked together on the successful deal, attracting investors from the U.S. and Europe.
“This securitization shows that the fast-growing microfinance and SME-finance space in emerging markets has now reached a maturity that allows it to access financing from mainstream capital markets,” commented Thomas Müller, co-head Financial Institutions Debt at responsAbility.
Eric Wragge of the CIB’s Securitised Products Group added: “This is an area of increasing focus for fund managers globally and applying capital markets technology to traditional impact investing creates the potential to open this sector to a wider range of investors. “We are very pleased to have helped facilitate this flow of investment to emerging economies, where financial inclusion can make such a difference in the lives of small-scale entrepreneurs and their communities.”
responsAbility offers more than $3 billion in loans to inclusive growth companies.
Key Benefits of the Deal
Increases availability of capital for small businesses without changing their lender
Creates access to new sources of funding for microfinance institutions to expand their lending programs
Enables mainstream investors to access the microfinance markets through a tradeable, well-understood financial product.