CDOs are especially well adapted instruments for microfinance investment, which only recently became in evidence. According to the Consultative Group to Assist the Poor (CGAP), CDO’s senior tranches are the most viable investment for commercial investors because they are well rated and the default risk is well covered. However, their reputation has recently suffered from the current credit crunch crisis. BlueOrchard and Symbiotics are among the world's leading companies structuring CDOs. Both of these Swiss actors are based in Geneva. CDOs’ characteristics consist of three different risk/return classes according to the investor’s choice. There are senior, mezzanine and equity tranches, the senior tranches being the first to be reimbursed in case of an MFI default but also the one which gets the lowest return. These MIVs have assets composed of a pool of loans of a term of 4 to 8 years¹. They usually invest in a single or a variety of leading MFIs mainly focusing in Latina America or the Caribbean and Eastern Europe and Central Asia with an average deal size of US$ 4,1 million. Another trait is the relatively low total expense ratio compared to other funds. However, creating a CDO is relatively expensive due to high legal costs.

• Collateralized Debt Obligations (CDOs)

Source: The Consultative Group to Assist the Poor (CGAP) Focus Note Nbr. 44: Foreign Capital Investment in Microfinance

¹Symbiotics SA Infromation, Consulting and Services report: La Suisse, un pôle de l’investissement en micro finance