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The process of securitization can best be understood by taking the following example. Assume that there exists an NBFC which has hire purchase as its major business. Being into hire purchase, the company will definitely have a pool of assets of different maturities spanning a few years. Obviously, these assets would be represented as lease receivables in the balance sheet of the company. That is, the company now has its fund locked-up for maturities spanning over long years facing a liquidity problem and constrained by capital adequacy norms in increasing its scale of business and hence has to raise capital. In such a situation, securitization will help in the transfer of such illiquid lease rentals to the SPV created for that purpose thereby offloading from its balance sheet. The SPV will buy all these lease rentals with 'credit enhancement' clauses at a time and will take care of the receivables when they come.
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