DEFINITION of 'Credit Tranche'

A system used by the International Monetary Fund (IMF) to govern its lending activities to member countries. When a member nation applies for a loan to help with balance of payment difficulties, the IMF will disperse the loan in a series of credit tranches. Tranches are a portion of the loan that is released upon the member country fulfilling conditions or requirements set forth by the IMF.

BREAKING DOWN 'Credit Tranche'

An International Monetary Fund loan usually lasts between 18 months and three years. At the start of the loan, the borrowing nation must demonstrate that reasonable efforts have been taken to overcome its financial difficulties. If this requirement is met, the country will receive the first credit tranche of the loan, usually 25% of its total value. The later series of credit tranches will have various conditions, each of which the borrower must satisfy before receiving the next portion of funding.

RELATED TERMS
  1. Sequential Pay CMO

    A type of collateralized mortgage obligation (CMO) in which there ...
  2. Asset-Backed Security - ABS

    A financial security backed by a loan, lease or receivables against ...
  3. Active Tranche

    A tranche of a collateralized mortgage obligation (CMO) that ...
  4. General Agreements To Borrow - ...

    A borrowing/lending medium for members of the Group of Ten. Members ...
  5. Accrual Bond

    A bond that does not pay periodic interest payments. Instead, ...
  6. Commercial Mortgage-Backed Securities ...

    A type of mortgage-backed security that is secured by the loan ...
Related Articles
  1. Insights

    Can The IMF Solve Global Economic Problems?

    The IMF is an important tool to help struggling countries, but it's not without its problems.
  2. Personal Finance

    Why Are Mortgage Rates Increasing?

    Learn how the secondary mortgage market and investor demand affect the cost of home ownership.
  3. Investing

    What Are Tranches?

    “Tranche” is a French word that refers to a slice.
  4. Investing

    3 Bonds You May Have Never Heard Of

    These lesser-known bonds may give your portfolio a boost when other investments products fall short.
  5. Financial Advisor

    Just How Vulnerable is the Global Economy?

    Is the global economy recovering or faltering? Perhaps the IMF knows the answer.
  6. Personal Finance

    CDOs and the Mortgage Market

    These structured products contribute to keeping borrowing rates low.
  7. Insights

    IMF Calls For 6-Step Solution to the Euro Crisis

    Discover six points the International Monetary Fund believes the European Union must address in order to continue economic recovery.
  8. Insights

    Is the IMF’s Loan to Ukraine Wasted Money?

    The IMF just approved the next instalment of its loan to Ukraine, but is the aid agency just wasting its money?
  9. Trading

    What Are IMF Special Drawing Rights?

    Technically, the SDR is neither a currency, nor a claim on the IMF itself.
  10. Insights

    IMF Cuts Global Growth Forecast as Brexit Hits UK

    The IMF cut global growth today. The UK and Nigeria were the two countries that suffered the biggest downgrades
RELATED FAQS
  1. What are the advantages and disadvantages of the International Monetary Fund?

    Learn about some of the main advantages and disadvantages of the International Monetary Fund and why the IMF's mission is ... Read Answer >>
  2. Who bears the risk of bad debts in securitization?

    Bad debts arise when borrowers default on their loans. This is one of the primary risks associated with securitized assets, ... Read Answer >>
  3. How is the International Monetary Fund financed?

    Understand the purpose that the International Monetary Fund (IMF) was created for, and learn how the organization obtains ... Read Answer >>
  4. What is a Z bond in a collateralized mortgage obligation (CMO)?

    Learn about Z-bonds, which are the riskiest level of tranches in collateralized mortgage obligations, and understand how ... Read Answer >>
  5. What is a tranche?

    A tranche is a security, like a collateralized mortgage obligation, that can be split up into smaller pieces and subsequently ... Read Answer >>
  6. Why do banks securitize some debts, and how do they sell them to investors?

    Learn how and why banks securitize debt, how the securitized debt is sold to other investors, and how different the different ... Read Answer >>
Hot Definitions
  1. Short Covering

    Short covering is buying back borrowed securities in order to close an open short position.
  2. Covariance

    A measure of the degree to which returns on two risky assets move in tandem. A positive covariance means that asset returns ...
  3. Liquid Asset

    An asset that can be converted into cash quickly and with minimal impact to the price received. Liquid assets are generally ...
  4. Nostro Account

    A bank account held in a foreign country by a domestic bank, denominated in the currency of that country. Nostro accounts ...
  5. Retirement Planning

    Retirement planning is the process of determining retirement income goals and the actions and decisions necessary to achieve ...
  6. Drawdown

    The peak-to-trough decline during a specific record period of an investment, fund or commodity. A drawdown is usually quoted ...
Trading Center