Purchase Without Recourse (PWOR)
What is Purchase Without Recourse (PWOR)?
- A contract whereby Cagamas purchases conventional and Islamic receivables without recourse for default risk
- Seller gets principal of the receivables up front and receives excess spread as servicer fee upon collection of loan installments
Key Features of PWOR
- Outright sale to Cagamas, no recourse for default risk
- Islamic and conventional transaction
- Standardized structure and documentation
- Pricing depending on quality of assets
- Cash purchase or settlement by Cagamas bonds
- Seller will be paid a Servicer Fee on a fixed periodic basis post purchase for the services rendered
- Sellers will be appointed as Servicer for loans sold – customers not affected
Benefits of PWOR
- Transfer of credit risk
- Full capital relief
- Management of portfolio concentration risk
- Shift to fee-based income
- Improves Return on Asset / Return on Risk Weighted Capital
- Improves earning stability
- Savings on rating, legal SPV and advisory fees
- Flexible transaction size.
- Do not require large transaction size to achieve economies of scale as in the case of ABS