BRIEF

Secured Transactions and Collateral Registries

October 5, 2015


Reforming the framework for movable collateral lending allows businesses—particularly SMEs—to leverage their assets into capital for investment and growth.

Modern Secured Transactions Laws and Collateral Registries have a dramatic impact on economic development. Collateral provides the basis for free-flowing credit markets, reducing the potential losses lenders face from non-payment. While land and buildings are widely accepted as collateral for loans, the use of movable collateral (such as inventory, accounts receivables, crops and equipment) is restricted because many countries do not have functioning laws and registries to govern secured transactions.

Reforming the framework for movable collateral lending allows businesses—particularly SMEs—to leverage their assets into capital for investment and growth. Modern Secured Transactions Registries increase the availability of credit and reduce the cost of credit.

Our main objective: Increasing access to credit for firms

We assist government clients in developing the appropriate legal and institutional frameworks to allow and encourage the use of movable assets as collateral for loans.

We combine deep knowledge and global experience to help modernize legislation, build electronic registries, and improve the capacity of stakeholders. In delivering the program, we work closely with World Bank Group partners and with public and private stakeholders and other international organizations.

Results:

  • Between October 2007 and June 2011 the secured transactions reform work the World Bank Group supported in China cumulatively facilitated US$3.58 trillion accounts receivable financing, of which US$1.09 trillion went to SMEs. As a result of the reform the total number of commercial loans involving movable assets grew by 21% per year over 2008-2010, versus a flat rate over the period 2006-2008.
  • In Colombia, in less than one year more than 100,000 loans secured with movable assets have been registered in the movable collateral registry, of which 5,000 were for SMEs for an aggregate amount of US$3.43 billion (compared to a few hundred per year before the reform).
  • Liberia started a collateral registry in 2014 to securitize movable assets, making it possible for farmers and entrepreneurs to use such assets against which they could borrow money.  In less than a year since its launch – most of which was during the Ebola crisis – US$227 million in loans were registered.
  • In Afghanistan, the recent establishment of the Public Credit Registry to determine the credit performance of borrowers has significantly improved access to financing of small and medium enterprises.
  • In May 2016, Nigeria launched a modern online collateral registry with the support of the World Bank Group. The registry will allow low-income people and small-scale entrepreneurs to secure loans against movable assets such as machinery, livestock, and inventory.

 

Specialists:
Elaine MacEachern, Murat Sultanov, Elsa Rodriguez Felipe and John Martin Wilson.






Experts

Mahesh Uttamchandani

Practice Manager for SME Access to Finance and Credit Infrastructures

Elaine MacEachern

Global Specialist

Experts

Murat Sultanov

Senior Operations Officer, Finance and Markets

John Wilson

Senior Financial Sector Specialist

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