Structured finance is a tailor-made finance solution which refers to the combination and pooling of various instruments like debt, equity, quasi equity, and bonds. Often involving multiple layers of debt, receivables and/or mortgages and is commonly used for risk management or to optimize financial performance. To know more please visit: https://www.venturestudiocapital.com/

These services are typically offered to large corporations and sometimes to mid-level corporates. The parties involved in structured finance are typically institutional investors, corporations, and financial institutions, rather than individual investors, due to the complexity and scale of the transactions.

Non-Structured Finance is almost like traditional finance. The term "unstructured finance" isn't commonly used in the financial industry. Typically, finance is categorized into structured and conventional (or traditional) finance. This topic will help understanding the difference between structured finance and traditional finance.

Structured Finance:

Complexity: Involves complex financial instruments like collateralized debt obligations (CDOs), mortgage-backed securities (MBS), asset-backed securities (ABS), and synthetic financial products.

Structured finance is a specialized area of finance dealing with complex and tailored financial products often used for risk management, securitization, and addressing specific financing needs of large institutions. Traditional finance, in contrast, deals with more straight forward, widely used financial instruments intended for a broader audience, including the public. The term "unstructured finance" is not standard, and usually, finance is categorized as either structured or traditional finance.

Structured finance is generally used by companies who have unique products like MBL Infra, Reliance infra, Bill Care and many others. The exact number of companies in India using structured finance to climb to the next level is difficult to count. Structured finance is a specialized area in finance and used by various companies, especially those with complex or unique financial needs.

Previously, structured finance was used only by large corporations only, however these days it is commonly used by different sectors in different ways to help them move to the next levels.

Structure finance used by few of the sectors/ industries are as mentioned here:

Infra Companies: For large-scale projects such as roads, bridges, airports, and power plants.

Real Estate: For residential and commercial projects by creating special purpose vehicles (SPVs) to raise capital and mitigate risks associated with specific projects.

Manufacturing: To optimize their capital structure. This includes securitizing receivables, leveraging assets, or accessing structured credit facilities to support expansion plans.

Banking and Financial Services: To manage their portfolios effectively. This may involve the creation of structured products like collateralized loan obligations (CLOs) or asset-backed securities (ABS) to diversify risk. Bank often buys readymade portfolios from NBFCs, and funds and recovery is managed by the original lenders. Through this structure, NBFC's can create a bigger structured portfolio.

Export and Import: To facilitate international trade. This can involve trade finance solutions like letters of credit and export credit agencies to mitigate payment risks.

Renewable Energy: Financing options may include power purchase agreements (PPAs) and green bonds.

Startups and Technology Firms: To secure venture capital, private equity investments, or convertible notes to fuel their growth and innovation.

Healthcare: For funding hospital expansions, medical equipment acquisitions, or healthcare infrastructure development.

Sector wise, there are more methods of structured financing.

Conclusion

Structured finance is like a customized financial toolbox used by big companies and institutions. It mixes different financial tools, like loans and stocks, to solve specific financial problems and make things run smoothly. While it was used only by big companies, now lots of different industries use this method. It helps them to manage risks, raise money and grow their businesses, making it an important part of modern finance.

By: Mr. Rajesh Shukla, Chief Strategist, National Intellectual Advisors (NIA). Also Mentor for Venture Studio Capital, Jagoo Nari and Padhega Bharat.