IFC’s $510 million dollar CLO signals shift to originate-to-distribute, but will its securitisation reach SMEs - Trade Treasury Payments

The World Bank Group’s private sector arm, IFC, has completed its first global securitisation of emerging market loans, a $510 million collateralised loan obligation (CLO) listed in London.

The deal was structured as a $320 million senior note sold to private investors, a $130 million mezzanine tranche insured by credit insurers, and a $60 million equity slice, the majority of which was retained by IFC, with a portion sold to a strategic investor. Goldman Sachs acted as arranger.

World Bank President Ajay Banga said the deal was “step one” in building an originate-to-distribute model that can mobilise institutional capital at scale while freeing the IFC’s balance sheet for further lending.

In practice, the IFC bundled together a pool of loans it had already made to companies in developing economies and divided them into tranches of risk. The safest tranche was sold to institutional investors such as asset managers. A riskier middle tranche was wrapped with credit insurance. The riskiest tranche, which absorbs the first losses if borrowers default, was kept by IFC and a strategic investor.

TTP spoke with members of its Global Advisory Panel about what this means for global liquidity and private capital mobilisation.

Andre Casterman, Chair of the Fintech Committee at the International Trade and Forfaiting Association, said the deal was “probably the most interesting market development” in years to expand SME liquidity through local banks. He added that legal and digital reforms such as MLETR, while valuable, will not shift the dial without capital.

A senior payments industry source told TTP that while liquidity is essential, other barriers persist. The costs of serving smaller clients, from KYC and onboarding to regulatory capital rules, continue to make SME lending uneconomical. They added that correspondent banking de-risking is often misunderstood, noting that the expense of maintaining bilateral banking relationships is driven by institutions’ own risk appetite and compliance regimes rather than by external payments infrastructure and networks.

Another fintech industry leader noted that many securitisation structures are “so highly collateralised that they leave no room for flexibility” when it comes to smaller borrowers.

Risk appetite was a recurring theme in the discussion. In a securitisation, through pooling, there is a diversification of risks, which can help address investor hesitation in frontier or SME markets.

Duarte Pedreira, Global Head of Trade and Working Capital Finance at Crown Agents Bank and Chair of the TF COP Task Force, said, “Even if you have a well-structured SME financing deal in Congo DRC, will you say yes? Risk aversion, not necessarily the actual risk, is the core issue. It’s a psychological, regulatory, and institutional hurdle, not always a rational one. Even with everything objectively in place — a sound borrower, solid structuring, tech rails, compliance assurance — the average commercial financier will hesitate, purely because of the location or the ‘SME’ tag.”

Merisa Lee Gimpel, founder of newly formed consultancy Digital Trade Works, said the critical issue was how credit risk would be managed in practice to ensure finance actually reaches SMEs.

Some questioned whether multilateral development banks themselves should be taking more risk.

Alexander R Malaket, President of OPUS Advisory Services International, said that MDB trade finance programmes have recorded exceptionally low levels of default and loss over decades. He suggested that this could be interpreted as evidence of excellent risk management, but also as a signal that MDBs may have room to take on slightly more risk in order to deploy capital where liquidity is most urgently needed.

Another expert (who preferred to remain anonymous), added that MDBs are not meant to compete with commercial banks, but to be complementary. “MDBs cover risks that the private market cannot. Their role is to be additional, to provide risk sharing on SMEs both at the individual and portfolio level, and to crowd in donors to provide first loss guarantees where required.” The expert noted that the withdrawal of commercial banks from small markets due to KYC costs and the maintenance of correspondent banking lines has left gaps that MDBs cannot fill alone.

Krishnan Ramadurai, CEO of Global Credit Data and member of TTP’s Global Advisory Panel, described the IFC CLO as “a transaction done to attract institutional private capital into emerging markets.” He noted that it represents “the first tangible step in a larger effort to build an originate-to-distribute model,” enabling the World Bank Group “to use securitisation as a tool to attract private sector funding at scale to meet the funding needs of emerging markets.”

Krishnan said that “private sector capital is needed as countries are cutting back on capital contributions,” making it a necessity to “attract private sector capital as an alternative, provided risk returns meet private investor expectations.”

He also observed that “IFC is holding the first loss tranche, which means they are first in line to absorb losses if underlying loans default. As most MDBs are preferred creditors and stand first in line, this is an interesting development.”

Others saw the IFC CLO as a sign of a broader opening to capital markets. According to IFC, it’s aim is to expand the pool of long-term investors with exposure to emerging market assets.

Casterman said it points to new possibilities when development finance is combined with private equity and capital markets, noting the growing interest of funds in the receivables space.

Another banker based in the Middle East suggested that such instruments could eventually extend beyond institutional investors. “The private sector has a high propensity for such instruments. The question is whether this could go beyond institutions to retail investors, even fractionalised bonds or tokenised versions. That would unlock a different scale of liquidity,” they said.

The IFC’s debut CLO is a milestone. It creates a template for bringing institutional investors into emerging market credit while recycling IFC’s balance sheet. Regular issuance could help build a new asset class.

But the SME finance gap will not be solved by securitisation alone. To reach SMEs in more difficult markets, multilateral banks, insurers and private investors will need to shoulder more risk, share losses more equitably, and address the operational barriers that continue to exclude smaller firms from finance.