Increasing Access to Credit Through Secured

Transactions Systems and Collateral Registries.

International Practices

Alejandro Alvarez de la Campa, WBGMauritius, April 20, 2010

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WHAT DO WE MEAN BY SECURED TRANSACTIONS SYSTEMS?

SECURED TRANSACTIONS SYSTEMS: LEGAL AND INSTITUTIONAL FRAMEWORK THAT ALLOW COMPANIES TO USE MOVABLE PROPERTY AS COLLATERAL TO ACCESS CREDIT.

MOVABLE PROPERTY: ALL TYPES OF MOVABLE ASSETS, TANGIBLE AND INTANGIBLE, PRESENT AND FUTURE, INCLUDING: Vehicles, industrial machinery and equipment

Inventory Accounts receivable Agricultural products (fertilizers, crops,

livestock, fishfarm) Consumer goods (computers, furniture) Commodities Intellectual Property Rights Negotiable instruments (shares, stocks) Letters of Credit Bank accounts, insurance policies, etc.

Modern Secured Transactions Systems Increase Access to Credit and Decrease the Cost of Credit

  Increasing the level of credit: In countries with a predictable priority system for creditors in cases of loan default, credit to the private sector as a percentage of GDP averages 60% compared with only 30 to 32% on average for countries without these creditor protections

Decreasing the cost of credit: In industrial countries, borrowers with collateral get 9 times the level of credit given their cash flow compared to borrowers without collateral. They also benefit from longer repayment periods (11 times longer) and significantly lower interest rates (50% lower)

ECONOMIC IMPORTANCE OF SECURED TRANSACTIONS

Secured Transactions Contributes to Sound Financial Systems

Diversification of assets held by financial institutions to spread risks more efficiently Reducing concentration and increasing competition in the financial sector, by enabling

both banks and non-bank financial institutions to offer secured loans Improving the ability of regulators to analyze portfolio risks

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Better Secured Transactions Systems = More Credit and Fewer defaults

Source: Doing Business

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WHY IS COLLATERAL AND COLLATERAL REGISTRIES IMPORTANT?

Assets Held by Firms Assets Banks Accept as Collateral

44%

34%

22%

Vehicles/machinery/equipment

Accounts Receivable

Land / Real Estate

73%

27%

Land / Real Estate Movable property

Source: WB Enterprise Surveys

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COLLATERAL REGISTRIES ARE PART OF DIFFERENT INSTITUTIONS DEPENDING ON THE

JURISDICTION• MINISTRY OF JUSTICE• MINISTRY OF COMMERCE/TRADE/INDUSTRY/CA• CENTRAL BANK• MINISTRY OF FINANCE/ECONOMY• OTHER

GOVERNMENT INSTITUTION

• BUSINESS/COMPANY REGISTRY (MOST COUNTRIES, CIVIL AND COMMON LAW)

• CREDIT INFORMATION BUREAU• CENTRAL BANK• OTHER (EGOVERNMENT, INFORMATION CENTER)

LOCATION OF COLLATERAL

REGISTRY

• GOVERNMENT INSTITUTION (MOST COUNTRIES)• OUTSOURCED (DATA REMAINS PUBLIC DATA)

MANAGEMENT OF REGISTRY

PERFORMANCE OF CRF COUNTRIES IN DOING BUSINESS LEGAL RIGHTS INDEX

Country Legal Rights Ranking Legal Rights Score Centralized Collateral Registry Hong Kong – China 1 10 Yes Singapore 1 10 Yes Malaysia 1 10 Yes New Zealand 6 9 Yes South Africa 6 9 Yes United Kingdom 6 9 Yes Vanuatu 6 9 Yes Zambia 6 9 No Australia 6 9 No India 23 8 Yes Nigeria 23 8 No Rwanda 23 8 Yes Macedonia 49 7 Yes Bostwana 49 7 No Canada 74 6 No Netherlands 74 6 No Mongolia 74 6 No Pakistan 74 6 No Samoa 74 6 No Colombia 92 5 No Mauritius 92 5 Yes Jordan 107 4 No Sri Lanka 107 4 No UAE 107 4 No Indonesia 130 3 No Tunisia 130 3 Yes

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METHODOLOGY FOR EVALUATING THE COLLATERAL REGISTRY IS RESTRICTED TO:

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DOING BUSINESS LEGAL RIGHTS HAS HOWEVER LIMITED INFORMATION ON THE

QUALITY OF COLLATERAL REGISTRIES

Having a collateral registry in operation (could be paper based or electronic)

Unified geographically (centralized) and by types of assetsIndexed by the grantor of a security right (searchable by

debtor’s name)

REAL BEST PRACTICE CASES OF MODERN COLLATERAL REGISTRIES

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COUNTRIES WITH MODERN COLLATERAL REGISTRY SYSTEMS: USA, CANADA, NEW ZEALAND, CHINA (CRC in PBOC), CAMBODIA, BOSNIA HERZEGOVINA, ROMANIA, SLOVAKIA, VANUATU, MARSHALL ISLANDS, ETC..

OTHER COUNTRIES (MEMBERS OF CRF) ARE REFORMING: RWANDA, JORDAN, AUSTRALIA

WHAT IS THE PROBLEM?: MODERN SECURED TRANSACTIONS IS A RELATIVELY NEW CONCEPT (1950s IN US). SO ALL UNREFORMED CIVIL LAW AND COMMON LAW SYSTEMS HAVE OBSOLETE SECURED TRANSACTIONS CONCEPTS

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PUBLICITY OF SECURITY INTERESTS IN MOVABLE COLLATERAL: COLLATERAL REGISTRIES

The means of making a claim against movable property transparent to third parties, and to establish the priority over a specific assets vis vis third parties. Registration of “security interests”, “charges” or “pledges”. Main principles:

1. Registry for rights on all types of movable property (tangible and intangible) and for all types of natural and juridical persons (companies)

2. Electronic web-based registry for real time data3. Centralized data 4. Notice based system5. Simplicity - information contained limited to what is essential: creditor,

debtor, loan amount, general description of the asset6. No notarization or submission of documents needed7. Data and searches accessible to all at real time8. Reasonable fees (flat fee for each registration)9. Security for data protection

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LAW

REGISTRY

CAPACITY

DIAGNOSTICSOLUTION DESIGN IMPLEMENTATIO

N

No laws, complex / conflicting laws

No registry or paper-based, dysfunctional registry

Little or no movable asset financing

Advice on revising, harmonizing the legal frameworkCreation of new registry or registry redesign, shift to electronic platform Focus on raising awareness, building partnerships with private and public sector

Enacting new laws. Intensive consultations to meet legislative agenda

What is wrong?

How to fix it?

Making it happen

New electronic / web based registry. Study visits, training, live demonstrations of registry, access pointsTraining of FIs and NBFIs. Workshops, conferences, media outreach, lending survey

Stakeholder Management (client: government + beneficiaries: FIs and NBFIs) + M&E

IFC SECURED TRANSACTIONS – BUSINESS & DELIVERY MODEL

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CURRENT PROJECT PORTFOLIO

MENA• Jordan• West Bank &

Gaza• Yemen

AFRICA• Ghana• Rwanda• OHADA Regional

Initiative• South Sudan

EAST ASIA• China• Indonesia• Lao PDR• Vietnam

SOUTH ASIA• Afghanistan• Bangladesh• Nepal

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CHINA CASE: REFORM PROCESS

LEGAL REFORM

1. Property Law, 2007

2. Registry Regulations3. Leasing

regulations

COLLATERAL REGISTRY

1. Centralized in Shanghai

2. Web Based3. Public Access

AWARENESS AND TRAINING

1. General Awareness

2. Training of Public sector Stakeholders

3. Training of FIs

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1.PROPERTY LAW2. REGISTRY3. TRAINING

CHINA: OPENING UP $1 TRILLION IN CREDIT FOR BUSINESSES THROUGH SECURED

TRANSACTIONS REFORM

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SECURED TRANSACTIONS

GUIDE

IFC EXTERNAL WEBSITE

http://smartlessons.ifc.org

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COLLATERAL REGISTRY DEMO

Welcome Screen

Set Up Client Account

Client Home Page

Client Account General InformationWhen account is opened, Contact information is filled with the initial Client Security Administrator’s

information, but may be changed. A client security administrator may update information in this screen.

Client Account UsersA client security administrator may add, delete, restore or change rights of users of the account.To delete, restore or change rights of a user, click the User Name to open the User Profile screen.

Client Account Financial TabAn index of past statements will be displayed in the Past Statements frame.

To view activity and amount due for a past month, click the month.

Initial Notice Filer InformationIf the filer is the secured party, click “Add Filer as Secured Party” to automatically fill and bypass Secured Party tab.

Add DebtorSelection of Debtor Type causes the correct type of field to be displayed for the debtor identifier, i.e. ID number or name.

Debtor TabClicking the pencil icon in the left column will display Debtor information in the Add Debtor screen for edit.

Clicking on the black X will delete the Debtor from the record.

Secured Party Tab

Collateral TabAt least one of the fields must contain information. That is, collateral may be described by anarrative description, a vehicle serial number, an attached PDF, or any combination of them.

Review Notice

Confirm NoticePrint this page as proof of filing. Click the Print icon in the upper left to select a printer.

Change Notice – First Screen

Termination ConfirmationOther types of changes will have similar screens with all relevant information displayed for print as confirmation of filing.

Search by File Number

Search by DebtorSelection of Debtor Type will display appropriate type of field for entry of Debtor ID number or name.

Search by Vehicle SN

Search Report (Page 1)

Search Report (Page 2)