Asset Backed Securitization in Bangladesh: Prospects and Hindrances

Abstract

Structured finance covers all advanced financial arrangements that serve to refinance and hedge any profitable asset efficiently beyond the scope of conventional forms of on-balance sheet securities to lower cost of capital, to mitigate agency costs of market impediments on liquidity and to bypass regulatory requirement. Asset Backed securities (ABS), leading form of structured finance, is growing rapidly in developed country as well as developing country. In Bangladesh, it is first issued privately by Industrial Promotion and Development Company (IPDC) in November, 2004. But so far the development of this potential sector is impeded. Basic reasons for the impediment are unsophisticated debt market for government and corporate bond, lack of legislation, capacity lacking of related parties. Some other problems like tax incentive, tax neutrality among all fixed income securities etc. are not very profound. Furnishing dynamic securitization act, mobilizing the formal debt market, market, strengthen the primary dealer network, acting market maker role by government etc. can pull up the ABS market with wide variety of prospects.

Keywords: Asset Backed Securities, Securitization, Special Purpose Entity, Pass Through Securitization, Originator