MODELS 2&3: Assets pooled from multiple development finance actors

**Model 2: Assets from multiple development finance actors are pooled to back issuance by one member of the pool.**

Model 3 – Assets from multiple development finance actors are pooled by an independent, specialist
development finance securitisation platform.

Instead of pursuing a securitisation programme on their own, multiple development finance actors can also come together to pool their assets. In this case, the securitisation can be carried out in two ways: In Model 2, assets from multiple institutions are pooled to back securities issued by one of the members of the pool. Model 3 brings together multiple development finance actors, but an independent, specialist development finance securitisation platform pools their assets.

A single MDB platform with multiple originators (Model 2) can enhance scale and diversification but faces potential conflicts of interest. A specialised, independent development finance securitisation platform (Model 3) provides stronger governance and broader participation, improving commercial viability, scalability, and additionality, though at higher upfront complexity and cost.

Feasibility

The feasibility of Model 2 is lower due to the complexity of legal due diligence, ratings, and harmonising processes across multiple MDBs/DFIs. While it is possible to onboard new institutions one at a time, conflicts of interest could arise if one MDB/DFI takes the lead. This institution could be perceived as prioritising its own assets or skewing the valuation of underlying loans in its favour.

Overcoming these perceptions and establishing robust governance and transparency is key.

No independent MDB/DFI securitisation platform currently exists to implement Model 3, and significant analysis would be required to determine its feasibility. At a minimum, feasibility would require a critical mass of participating MDBs and DFIs as originators, harmonisation of contracts across multiple institutions, and a willingness among participants to share the necessary data with the platform, rating agencies, and investors.

These considerations also affect Model 2. However, once established, an independent platform could mitigate conflicts of interest and develop a range of structures and strategies tailored to the diverse needs of all participating institutions. Its independence would allow the new entity to serve as a centre of excellence on securitisation for the development finance community.

Commercial Viability

Pooling assets from multiple MDBs/DFIs can create larger and more diversified asset pools compared to a single originator. This improves portfolio risk and, as a result, pricing. The startup costs for a new platform would be higher, but a purpose-built platform can have more streamlined operations and robust governance, enhancing efficiency over the long term. Under either model, the lead MDB/DFI (Model 2) or a specialist platform (Model 3) can choose to compromise on commercial viability for strategic benefit.

For example, a AAA-rated sponsor optimising for commercial viability would likely retain the AAA tranche of a securitisation, because its senior debt would price more attractively than a AAA tranche backed by only a subset of its overall asset base. Conversely, if the same issuer were optimising for private capital mobilisation, it would likely sell/transfer the AAA risk as this tends to be the largest tranche and most attractive to investors.

Additionality

Multi-originator platforms can spread the burden of asset contributions, potentially delivering incremental capital relief and liquidity to multiple MDBs/DFIs simultaneously. This lighter touch on each individual institution’s balance sheet could offer greater flexibility than Model 1 and could be more likely to create net new capacity for development lending. Over time, these platforms may catalyse broader investor interest and lead to replication.

The use of a “warehouse” structure for pooled assets can enable immediate mobilisation of private capital from a range of investors, including commercial banks and sophisticated market participants, at the start of new loan origination. This early external involvement not only diversifies risk but also ensures a steady flow of capital. By freeing up capacity within the warehouse, these securitisations enable ongoing origination of new loans without breaching the MDB/DFI’s capital constraints.

Scale

Pooling assets from multiple MDBs and DFIs can achieve greater scale than any one institution could alone. Although asset sourcing and coordination are more complex, the combined asset base of several MDBs and bilateral DFIs could yield two or more securitisations per year, sustaining market presence and spreading fixed costs. Over time, a dedicated platform or MDB/DFI lead originator could institutionalise the securitisation process, enabling continuous pipelines of new deals.

Under Model 2, the risk of (perceived) conflict of interest discussed above will be particularly acute if the lead MDB/DFI provides a significant majority of assets into the pool. Maintaining a more balanced portfolio across originators to mitigate this risk would limit scale relative to an independent platform, which would not be affected by such conflicts and so could draw a greater share of assets from the largest originators.

Replicability

While a single MDB/DFI platform pooling assets from multiple originators could repeat its own transactions, it is less likely to serve as a template that other development finance actors can replicate. A specialised independent platform may be more replicable than a single-originator model as it could standardise legal frameworks, credit processes, and ratings methodologies. This means these means could, at least in principle, be adapted for different sets of MDBs or regions. However, the total addressable market for MDB and DFI assets would remain limited, so the model would be unlikely to trigger replication to the same extent as models that include pooling with/of private sector assets.