How covered bonds can prevent a crisis like 2008?
When people hear about our product, they immediately reference the movie, The Big Short, which revolves around the Global Financial Crisis: 2008. Well, its obvious for people to relate our product to it, but the instrument that we bring solves the problem of the 2008 crisis, which began in the USA. If someone wants to buy a house, they often borrow money from the bank. In return, the bank gets a piece of paper called a Mortgage. Every month, the homeowner has to pay back a portion of the principal plus interest to whoever holds the piece of paper. If they stop paying, thats called default, and whoever has the piece of paper can get ownership of the house. (Here we say whoever holds the piece of paper because these mortgages were sold to third party{banks, institutions}) Now, big banks/institutions bundled together thousands of individual mortgages and sold shares of that pool to investors. These were called Mortgage-Backed Securities(MBS). During this time, home prices were rising, so lenders thought  in a worst-case scenario, if the borrower defaults on the mortgage, we can sell the house and close the loan. Further, since banks were selling off the mortgages to other investors, they significantly relaxed their lending practices and gave loans to borrowers who were often not eligible for these loans. The collateral taken was much smaller than what it should have been. Banks would give out these bad quality loans, earn the fee and sell it to other investors in the market. Effectively banks had no Skin in the game in these loans and did not care much about the quality of these loans. Secondly, many complicated products allowed people to bet on assets that someone else was holding became popular. Often, an already securitized pool product would also be re-securitized, which would be again securitized by someone; this story continues. Lack of skin in the game and such very complicated structures created an incredibly complex web of assets, liabilities, and risks. When things went wrong, it went bad for the entire financial system. Thankfully in India, the Reserve Bank of India has explicitly prohibited such complicated structures. After this crisis of 2008, RBI also brought out a series of regulations to prevent a similar situation in India. Before the crisis, banks and financial institutions that gave out loans were allowed to sell the entire loan book to a third party immediately the very next day. But after the 2008 crisis, RBI bought in 2 major regulations: Minimum Holding Period(MHP) and Minimum Retention Requirement(MRP)  Minimum Holding Period(MHP):  As per these regulations, institutions need to hold the loans for at least 36 months before selling the loan book. This means that they cant just give out a loan and sell it the very next day. Minimum Retention Requirement(MRR):  Suppose the loan book getting sold is 100 crore; Reserve Bank Guidelines stipulated that the first 510 percent, i.e., Rs 510 crore loss from these loans would have to be borne by the seller. Covered Bonds, a very commonly used product in European markets for more than a century, is an effective solution here. How this works is when the regulator asks the NBFCs to hold a minimum of 510 percent of the loans, company X will ask NBFCs to provide 100 percent of the recourse over the investment in our products, thus offering a secure structure to their investors. This means that even if all the loans in the pool default, NBFC would still be liable to pay back the money. The NBFC is further obligated that if a loan has become NPA, it must be replaced with a new performing loan. In India, Covered bonds are relied on by many institutional investors like Mutual Funds, Private Family offices who want good returns however need better credit quality.