Mohammed Shoaib 1930258

Securitization
Introduction
Book definition: Securitization is the conversion of illiquid
assets into liquid assets.

Explanation:
Securitization is a process of selling assets such as
mortgages and other consumer loans by the person holding them
to a potential intermediary who will convert these assets into
marketable securities.

It allows the separation of assets from a company and the use

of these assets as backing for securities that appeal to
investors, also with lesser liability on their balance sheets
they can apply for additional loans.

This process redistributes risk of the assets by breaking up

the traditional role of bank into a number of roles.

Process of securitization
Usually done by pooling the
and conveying them to a SPE
turn issues securities that
assets creating a financial
cash flows of one or more assets
(Special purpose entity) which in
represent claims in principal
relationship in capital market.

But following three general features are common among the

structures for securitization.

 Pooling and Transferring receivables

 Structuring and issuing securities

 Servicing, allocating payment and monitoring

Basic elements and Parties of Assets securitization

Borrower: Individual or organization responsible for payment

on the underlying loans and therefore coined as the ultimate
performance of the asset-backed security.
Mohammed Shoaib 1930258

Originator: Entity that underwrites and makes loans. This

individual or company handles obligations on the loans before
it is transferred to SPE.

Assets: Any type of assets that produces income with adequate

performance and some diversification of credit risk can be
securitized.

Servicer: The entity responsible for customer service and

payment processing for the borrowers in the securitized pool
after collection of loans payments.

Trustee: A third party representing the investors interests in

securitization. Ensures that the securitization operates as
said in the documents and are responsible for reaching certain
key decisions that may arise during the life cycle of the
transaction. They receive regular updates on the performance
of the assets to make sure the cash flow procedures are being
followed.

Credit Enhancer: Method used to protect investors in the event

that a deficit in cashflow from the assets hinders the payment
of interest and principal due for the security. It is used to
improve credit rating and therefore the pricing and
marketability of the security.

Rating Agencies: This entity assesses the credit quality of

the transactions.

The Securities: Asset-backed instruments representing an

accommodation between originator’s needs, payment
characteristics of asset and investors preferences and
constraints.

Underwriter: Acts as an advisor for seller on how to structure

the security and for pricing and marketing to investors.

Investors: The entity or organization that holds the ABS.

Securitization in Bangladesh
Securitization can help fund the recourse starved
infrastructure finance, housing finance, FI’s fund
mobilization and reducing capital requirement.
Mohammed Shoaib 1930258

Yes, securitization can take place in Bangladesh but according

to the research the market is not shaped for it yet.

Main reason for the hindrance in securitization is the lack of

capacity, the parties are not trained or structured yet to
flourish this sector.

there are other hindrances like

 Lack of an active debt market

 Inadequate Strength of credit rating Industry
 Lack of appropriate legislation
 Lack of investor appetite