Research Paper: Scaling Securitisation in Development Finance: Potential, Precedents, Pathways

This MOBILIST research report assesses the potential for securitisation to be scaled in the development finance sector, presents case studies of pioneering transactions to date, and draws lessons on promising routes to scale and the roles that multilateral development banks (MDBs) and bilateral development finance institutions (DFIs) can play.

The G7 and G20 have underscored the urgent need for trillions of dollars in private capital to finance sustainable development, particularly in emerging market and developing economies (EMDEs). Pioneering transactions show that both true-sale and synthetic securitisation have the potential to increase annual direct lending volumes by development finance actors to EMDEs, without compromising credit ratings and while mobilising private capital.

Precedents

Precedents in the securitisation market show that momentum is building. A range of case studies proves that development finance actors are executing and proposing transactions at a meaningful scale, while the private sector supply of (and demand for) sustainable securitisations is growing. These private sector transactions set benchmark terms that development finance originators and investors should understand, and align with, if they are to see early deals scaled and replicated.

Pathways

Over time, demonstration effects from early movers like the African Development Bank (AfDB), the West African Development Bank (BOAD), IDB Invest, and those involved in Bayfront Infrastructure Management’s infrastructure-asset-back securitisation series can pave the way for more standardised, widely replicable structures that deepen markets, mobilise private capital at scale, and sustainably support global development finance objectives. Drawing on these case studies, the report appraises five models through which securitisation can be scaled in development finance. Each model is described in the market where it exists and qualitatively appraised against MOBILIST’s investment criteria: feasibility, commercial viability, additionality, scale, and replicability.

Potential

To reach scale and trigger replication, future transactions should continue to respond to the high degree of standardisation on which securitisation thrives and align wherever possible with market norms. This will require collaboration with market participants, rating agencies, and regulators to understand expectations and requirements. In doing so, the development finance community can transition from individual transactions to programmes of repeated transactions and ultimately to intentionally building markets for the securitisation of development finance and impactful private assets in EMDEs.

Development finance actors should continue to learn from one another and collaborate with market participants and regulators to intentionally build a market for the securitisation of development finance. The paper identifies the following high-level recommendations for the development finance community to consider.

Strategy

Develop a unifying ambition in terms of dollars mobilised or transactions executed by 2030 to encourage a shift in strategy towards market-building and extended securitisation programmes.

Transitioning now from a strategy focused on pioneering transactions to establishing securitisation programmes and building securitisation markets, can help to accelerate private capital mobilisation and risk transfer.

Operations and Policy

Deepen collaboration between MDBs/DFIs to share lessons, data, and documentation, building on recent roundtables and convenings.

Sharing operational experience, developing standardised/template documents, preparing harmonised loan data templates, and so forth within the development finance community will help to align future transactions with market standards and norms. Coordinated external operational engagement with rating agencies, investors, and (where relevant) regulators will build awareness of specificities of development finance assets and ensure that calls for reform and recalibration benefit from the community’s collective insight and advocacy.

Asset Pooling

Commission a joint feasibility and structuring study to develop and appraise the pooled structures identified in MOBILIST scoping and agree on an action plan for feasible options.

There are several routes to scaling securitisation in development finance, including the potential to pool assets (i) among those institutions that do not have sufficient scale to sustain a programme of transactions independently and (ii) with private sector assets, to enhance scale and diversification.