Efficient and predictable insolvency regimes enhance micro, small and medium-sized enterprises’ (MSMEs) access to credit that they need to thrive. A leading group of experts discussed this topic at last week’s Insolvency and Creditor/Debtor Regimes (ICR) Task Force meeting.
The meeting brought together more than 50 leading insolvency experts from the private, public and international sectors to advise the Bank Group on a number of insolvency matters, including the treatment of MSMEs and Islamic Finance under World Bank insolvency guidance.
The Task Force members discussed the potential to reduce formality, streamline procedures and create alternative remedies to lengthy insolvency court processes for MSMEs, especially micro and small enterprises. Since they represent the majority of companies in many developing countries, promoting more efficient procedures could help these enterprises get back on track faster and more effectively after facing financial distress. The Task Force also noted the G20 Leaders Communiqué, which endorsed the G20 Action Plan on SME Financing at the November 15-16 meeting in Antalya, Turkey. The G20 action plan includes insolvency as one of three key priority reform measures in the area of financial markets infrastructure.
A panel of experts and the Task Force also discussed the treatment of Islamic finance in insolvency, which is a nascent topic where few formal insolvency cases exist and which needs to be studied further. Formal guidance with respect to Islamic finance and insolvency may foster more predictability and enhance the use of Islamic finance.
The Task Force will undertake further detailed study on these two topics to provide recommendations on whether the World Bank Principles for Effective Insolvency and Creditor/Debtor Regimes should be modified to take these issues into direct consideration. The work on MSMEs will be undertaken in partnership with the University of Madrid and the University of British Columbia. Another meeting of the Task Force is expected in the first half of next year.
At the meeting, the Bank also launched the new Insolvency website, including the updated Global Insolvency Law Database (GILD), which provides a comprehensive reference to most insolvency legislation around the world.
The Financial Stability Board has designated the World Bank and the United Nations Commission on International Trade Law (UNCITRAL) as the standard-setters for business insolvency and creditor/debtor regimes (the ICR Standard). As the ICR Standard, the World Bank Principles and the UNCITRAL Legislative Guide’s recommendations represent a definitive reference for the evaluation of insolvency and debt resolution frameworks and of creditor/debtor relationships.
The World Bank uses the ICR Standard to support developing countries in strengthening their legal, regulatory and institutional frameworks that govern ICR regimes through the preparation of in-depth diagnostic ICR Reports on the Observation of Standards and Codes (ROSCs), providing technical assistance as well as the development and dissemination of knowledge and expertise on insolvency-related issues.
The World Bank Group assists governments in improving their credit environments through the development of more effective insolvency systems. This is achieved through international standard-setting, detailed diagnostics and technical assistance for implementation.