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Getting Credit - Legal Rights: Two approaches to developing an integrated secured transactions regime

Author: Doing Business
Publication: Doing Business 2017

Overview

In recent years, modern secured transactions regimes, the milestone to facilitating access to finance for small and medium-size enterprises, have gained lots of attention from policy makers who struggle to adjust their legislations in order provide a favorable business environment for small companies.  The collateral related reforms can be achieved either by a piecemeal approach, where various existing laws are amended, or by the passage of a new comprehensive law that encompasses all types of security interests in movable assets. An integrated approach to secured transactions enlarges the scope of assets that small and medium-size enterprises can use as collateral, thus expanding their access to finance. Small companies often do not have a real estate in their assets, but have movable assets which constitute precious means to provide guarantee to repay the loan.  The non-possessory security interest is the focus of modern reforms, as this approach allows the borrower to maintain possession of the collateralized asset for use in its business operations.  A modern collateral registry—centralized, notice-based and with online public access—is a key ingredient of well-functioning modern secured transactions system. The registry needs to be unified for all types of movable assets, searchable and accessible online for verifications, registrations, amendments and renewals.

Main Findings

  • Over the past decade, 82 economies have reformed their legislation governing secured transactions.
  • By mid-2016, 26 economies had operational, notice-based and modern collateral registries, including Colombia, Laos, Australia, and most recently Costa Rica, El Salvador, Liberia, Malawi, The Gambia.
  • In Ghana, the first economy to open a collateral registry in Africa, $1.3 billion was issued in financing for small companies and $12 billion in total financing for the business sector overall using movable assets as a collateral.
  • Latin America and Caribbean are the most recent example of robust reforming in the area of secured transactions.