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New Frontiers of PhilanthropyA Guide to the New Tools and New Actors that Are Reshaping Global Philanthropy and Social Investing$
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Lester M. Salamon

Print publication date: 2014

Print ISBN-13: 9780199357543

Published to Oxford Scholarship Online: August 2014

DOI: 10.1093/acprof:oso/9780199357543.001.0001

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Secondary Markets

Secondary Markets

(p.121) Chapter 3 Secondary Markets
New Frontiers of Philanthropy

David J. Erickson

Oxford University Press

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.

Keywords:   secondary market, community development finance, banks, securitization, credit enhancement, loan pools, liquidity, leverage

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