Harare - The Reserve Bank of Zimbabwe Governor, Dr John Mangudya said there is need for local banks to adopt new banking products including asset securitization and derivative products as the economy expands. Asset securitization is the process of taking many individual assets and combining them into a group,or pool,so that investors may buy interests in the pool rather than in the individual assets. The creation of collateralized mortgage backed securities is one example.The process increases the number of possible investors due to the ability to sell shares in the pool at relatively modest prices. In addition, because of the high degree of predictability inherent in large groups of things, the process of securitization increases predictability,lowers risk,and therefore increases value. While all securities carry certain risks, such as interest rate and market liquidity, there are three significant risks investors assume when they purchase asset based securities. Firstly, borrowers can choose to prepay, or accelerate their payments such that their loan is paid off ahead of schedule. For example, a homeowner might add $100 to their monthly mortgage payment to reduce the outstanding principal on the loan. Secondly, if interest rates are falling, borrowers may decide to refinance their loans at more attractive rates. Thirdly, if borrowers can no longer afford to repay money owed on their loans, cash may not flow into the trust as expected, or the entire balance of the loan may be lost to bankruptcy. All of the above result in the unscheduled shrinking of the assets held in the trust, or the premature return of a portion of the investor's money.  In the case of bankruptcy, not only is the cash flow into the trust lost, but the eventual repayment of the investors' money is uncertain. Derivative product is a financial contract with a value that is derived from an underlying asset. They have no direct value in and of themselves -- their value is based on the expected future price movements of their underlying asset. Derivatives are often used as an instrument to hedge risk for one party of a contract, while offering the potential for high returns for the other party. According to economists, derivatives have been created to mitigate a remarkable number of risks: fluctuations in stock, bond, commodity, and index prices; changes in foreign exchange rates; changes in interest rates; and weather events, to name a few. As often is the case in trading, the more risk you undertake the more reward you stand to gain. Derivatives can be used on both sides of the equation, to either reduce risk or assume risk with the possibility of a commensurate reward. This is where derivatives have received such notoriety as of late: in the dark art of speculating through derivatives. Speculators who enter into a derivative contract are essentially betting that the future price of the asset will be substantially different from the expected price held by the other member of the contract. They operate under the assumption that the party seeking insurance has it wrong in regard to the future market price, and look to profit from the error. Contrary to popular opinion, though, derivatives are not inherently bad. In fact, they are a necessity for many companies to ensure profits in volatile markets or provide mitigated risk for everyday investors looking for investment insurance. However, shareholder might lose more money if the basic asset price moves against them drastically and the financial derivatives might expose shareholders to counter party risk and all types of financial derivatives have different risks at different level to this effect. Also financial derivatives will stand as an unsuitable large amount of risk for little and mostly for shareholders who lack experience as financial derivatives offers chances of huge rewards and so many attractions even to individual shareholders. Derivatives are complicated instrument as forms of insurance in transferring risk among all parties involve which presume an additional risk. Additionally financial derivatives often have a huge estimated value, as a result of that there is a high level of risk and shareholders might lose much without been compensated. To date the banking industry in Zimbabwe comprises 14 commercial banks and four building societies, namely: Agribank, BancABC, Barclays, Cabs, CBZ, Ecobank, FBC Bank, FBC Building Society, Nedbank (formerly MBCA), Metbank, National Building Society, NMB, POSB, Stanbic, StanChart, Steward, ZB Bank, and ZB Building Society. EQUITY AXIS- NEWS