*Investment Strategist, IFMR Investments, IIT-Madras, Research Park, Taramani, Chennai, India
**Indian Institute of Technology Madras, Adyar, Chennai, India
***Portfolio Analyst, IFMR Investments, Madras School of Economics, Kottur, Chennai, India
Online published on 23 September, 2014.
The corporate bond market in India is under developed. Small companies like microfinance institutions are eliminated out of the bond markets because of low credit ratings. This paper proposes a structured finance approach to developing the bond market in India. Pooling of bonds and issuing structured securities can more adequately meet investor demand. However, a significant challenge in structured finance is computation of credit risk. To this effect, the paper describes the Integrated Rating Approach to imputing credit risk. The output shows the potential structuring has in converting low rated microfinance bond pools into high rated tranches.
Collateralised debt obligations, credit rating, structured credit, microfinance, India, bond market
