What’s a subordinated loan?
A subordinated loan is a “bulk loan” granted by FDI to a Financial Intermediary, in order to make sub-loans to eligible investment enterprises. The main feature of such a loan is the reliance of the interest and principal payments upon the financial intermediary sub-loans portfolio quality. That is, every repayment (principal and interest) shall be made out of the payments effectively received by the financial intermediary from the final beneficiaries.
What are the maximum amount and the maximum maturity of a subordinated loan?
There is no limit for a subordinated loan, but the portion of a sub-loan financed out of the proceeds of an FDI’s subordinated loan cannot exceed 90% of the total or USD 750,000. For example, if the subordinated loan is USD 7,500,000, the number of sub-loans to be disbursed by the Financial Intermediary shall not be lower than 10.
The maximum maturity of a subordinated loan is the same as any other FDI’s loan, that is 18 years, including a 3-year grace period.
What are the advantages of a subordinated loan?
The advantages of a subordinated loan for the involved parties are the same as a co-financing’s, except the fact that the Financial Intermediary enjoys another advantage consisting in an increase of the size of its balance sheet without taking additional risk. In fact, unlike the FDI’s share in a co-financing which is treated as an off-balance sheet operation, an FDI subordinated loan is a real pledged resource without reserve requirements for the Financial Intermediary which is also entitled to include in its portfolio, the integrality of the sub-loans made out of the FDI’s subordinated resources
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