Malaysian government had set out its policy of encouraging home-ownership among low and medium income groups since 1970s. As a part of this drive, Cagamas Berhad (the National Mortgage Corporation of Malaysia) was established in 1986. The objective of this corporation is to securitize the mortgage loans and offer these securities in the debt market. Cagamas aims at the realization of: (1) enabling home-ownership financing agencies to gain greater mileage out of the limited resources available; and (2) to increase the breadth of bond market in Malaysia and make it active. Cagamas started issuing asset-backed securities called Residential Mortgage Backed Securities (RMBS) effectively from 2001. It has also commenced issuing other asset-backed securities covering plantation assets, credit cards, students loans, etc. Other financial institutes have also commenced issuing asset-backed securities and they are called in this paper as Private Labelled Asset-Backed Securities (PLABS). The objective of this study is to assess the attractiveness of RMBS of cagamas to the investors relative to the Conventional Corporate Bonds, and PLABS. The paper concludes that RMBS are gaining ground in Malaysia and hold promise to invigorate Bond Market (especially, Derivatives Market) in Malaysia.

Refinancing of loans advanced by banks and other financial institutions in the capital market has been there ever since, perhaps, the origin of financial intermediation itself. That was the approach to risk management through risk sharing and risk distribution. This process enabled lending institutions to gain greater mileage out of their limited capital resources besides distributing the risk associated with the loans granted. However, this is not a risk distribution process since the refinancing institute has `recourse' to the original lender in case of default by the borrower. Therefore, this `refinancing' facility is a kind of `accommodation' arranged between financial institutions. Instead, if the financial intermediary granting loans is enabled by the capital market to get refinance for the loan granted by it through financial instruments (securities) issued by it with the backing of the loan, it is called securitization; and the asset behind the securities issued is the loan granted originally. And this is asset securitization by financial institutions.

In the area of `mortgage', a type of refinancing existed since long traceable to medieval England and more actively and widely in the 18th century Europe. In the US, it commenced in 1930s and started swirling and surging ahead since 1960s (Saunders and Cornett, 2004, p. 201).

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