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Asset securitisation as a risk management and funding tool: What small firms need to know

Andreas A. Jobst (International Capital Markets Department (ICM), International Monetary Fund (IMF), Washington, DC, USA)

Managerial Finance

ISSN: 0307-4358

Article publication date: 1 September 2006

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Abstract

Purpose

The paper surveys the risks and rewards of asset securitisation and illustrates how this structured finance technique can lift credit constraints to small‐ and medium‐sized enterprises (SMEs) as banks to turn more conservative in their lending in response to more risk‐sensitive capital requirements for credit risk.

Design/methodology/approach

The mechanics of securitisation provide an analytical framework and perspective for our analysis of conditions for sustainable SME securitisation and its potential contribution to greater risk diversification of both issuers and investors. The paper also elicits lessons to be learned for essential regulatory and policy measures to guide a sound development of securitisation markets from an empirical review of SME securitisation in Germany.

Findings

The paper finds that the structural versatility of securitisation offers economic benefits irrespective of the configuration of the financial system. The development of a viable securitisation market for SME‐related claims in a bank‐based financial system is likely to require financial sector initiatives, whose scope and intensity might be enhanced by development agencies. Orchestrated policy efforts make for a benign strategy to incubate SME securitisation in a timely fashion, while keeping legal uncertainty and economic attrition to a minimum.

Originality/value

As opposed to previous papers, the paper defines and discusses SME securitisation from both the perspective of bank‐ and firm‐sponsored securitisation and issue hands‐on recommendations for its efficient implementation.

Keywords

Citation

Jobst, A.A. (2006), "Asset securitisation as a risk management and funding tool: What small firms need to know", Managerial Finance, Vol. 32 No. 9, pp. 731-760. https://doi.org/10.1108/03074350610681943

Publisher

:

Emerald Group Publishing Limited

Copyright © 2006, Emerald Group Publishing Limited

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