Securitisation: what is it and what does it have to do with loans?

News & Announcements
Team MONEYME|07 June 2023| 2-minute read

Ever wondered how lenders fund their customers’ loans?  
Banks typically fund them through a combination of deposits (ie the funds in their customers’ savings and transactions accounts) and securitisation. 
Non-bank lenders like MONEYME, however, primarily fund loans via their own capital and securitisation. We recently completed a $150m securitisation deal
For those who are not too familiar with term transactions, here’s what it means and how it will help us grow: 
What is securitisation?  

Securitisation is when a lender pools together a group of its loans and funds them by selling securities, which are secured (or backed) by those loans, to investors. In other words, asset-backed securities (ABS). 
The securities are generally divided into tranches with different levels of risk and return so investors can decide the level of risk that they would like to take on – the higher the risk profile, the higher the rate of return. 

What’s the benefit for investors? 

Investors can earn income in the form of interest on the securities. 

Securitisation essentially gives investors access to assets that would otherwise be sitting on a lender’s balance sheet, by making them tradable on the market.  

What’s the benefit for MONEYME? 

For MONEYME, our recent $150m term transaction (a form of securitisation) turned previously illiquid assets into cash, which is used to write new loans for customers and allows us to grow. 

Securitisation also helps diversify our funding and limits our credit risk; part of the risk of the loans is passed on to the investors – along with part of the returns.  

In a nutshell 

Securitisation is really a win-win deal. We grouped together $150m of loans and sold securities backed by them to investors, giving them the opportunity to earn income from the loan repayments and us the opportunity to free up capital, diversify our funding, reduce risk and continue to grow. 

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