The secondary market operates as a resale market for loans, as opposed to a primary market in which loans are originated by lenders. In the secondary market, those who hold loans—banks, credit unions, microfinance institutions, community development finance institutions, and similar institutions—try to sell them to investors. The purchaser gets future cash flow from the loan, and there is often a guarantee from the seller or a third party to protect against future defaults by the original borrower. The primary lender is then recapitalized to make more loans to the schools, clinics, affordable housing, or small businesses that promote their social objectives. There is great potential to use this actor to leverage the dollars that go to socially beneficial enterprises. But today it is small, in part because of the capital markets’ difficulties generally, but also because successful prototypes have been one-offs or require high amounts of subsidy to maintain.
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