IFC’s Global Secured Transactions

and Collateral Registries Program

Alejandro Alvarez de la Campa, IFC

Lisbon, Portugal, June 6-7, 2011

2

OUTLINE

1) WHAT IS SECURED TRANSACTIONS?

2) WHY IS IT IMPORTANT FOR AFRICA?

3) HOW DOES IFC IMPLEMENT THIS WORK?

4) AFRICA PORTFOLIO AND EARLY RESULTS

5) IMPACT OF REFORMS IN OTHER REGIONS

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1) WHAT DO WE MEAN BY

SECURED TRANSACTIONS?

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SECURED TRANSACTIONS SYSTEMS: LEGAL AND INSTITUTIONAL

FRAMEWORK TO FACILITATE THE USE OF MOVABLE PROPERTY AS

COLLATERAL FOR BOTH BUSINESS AND CONSUMER LOANS

MOVABLE PROPERTY: ALL TYPES OF MOVABLE ASSETS, TANGIBLE AND

INTANGIBLE, PRESENT AND FUTURE, INCLUDING:

Vehicles, industrial/agricultural

machinery and equipment

Inventory

Accounts receivable

Agricultural products (crops,

livestock, fishfarm)

Consumer goods (computers,

furniture, household appliances)

Commodities

Intellectual Property Rights

Negotiable instruments

Bank accounts, insurance policies

Minerals and timber to be severed,

etc.

WHAT DO WE MEAN BY SECURED TRANSACTIONS SYSTEMS?

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2) WHY IS SECURED TRANSACTIONS

IMPORTANT FOR AFRICA?

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SME FINANCE GAP

SME FINANCE GAP IN SUB-SAHARAN AFRICA

Between US$ 140-170 Billion

Source: McKinsey & Co. Global Financial Inclusion Practice

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COLLATERAL GAP

MISMATCH BETWEEN ASSETS OWNED BY COMPANIES AND COLLATERAL REQUIRED

44%

34%

22%

Vehicles/machinery/equipment

Accounts Receivable

Land / Real Estate

73%

27%

Land / Real Estate Movable property

Capit

al Sto

ck o

f Fir

ms

Co

lla

tera

l Ta

ke

n b

y F

Is

Credit Application Rejected -

Insufficient Collateral

0%

10%

20%

30%

40%

50%

60%

70%

80%

Afr

ica

Ea

st

Asi

a

EC

A

La

tin

Am

eri

ca

So

uth

Asi

a

Did Not Apply: Collateral

Requirements too High

0%

5%

10%

15%

20%

25%

30%

35%

Africa East Asia ECA Latin

America

South

Asia

LACK OF “ADEQUATE” COLLATERAL IS A MAJOR IMPEDIMENT

Source: World Bank Enterprise Surveys

Credit Application Rejected:

Insufficient Collateral

Did not apply: Collateral

Requirements Too High or Thought

Application Would be Rejected

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BORROWERS AND

CREDITORS RIGHTS

INDEX (0-10)

High

income:

OECD

Europe &

Central

Asia

East Asia &

Pacific

Latin

America &

Caribbean

South

Asia

Sub-Saharan

Africa

Middle

East &

North

Africa

6.9 6.6 6.1 5.5 5.4 4.6 3.0

WEAK CREDITORS

RIGHTS DESPITE1. G22, 1998

2. BASEL II, 2004

3. G20, 2010

Source: World Bank Doing Business 2011

WEAK BORROWERS AND CREDITORS RIGHTS

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WHY ARE FINANCIAL INSTITUTIONS NOT WILLING TO LEND

TAKING MOVABLE PROPERTY AS COLLATERAL?

LACK OF ADEQUATE

LEGAL FRAMEWORK

- Restrictions on types of assets

- Priority of creditors unclear

- Enforcement issues

LACK OF REGISTRY OF

SECURITY INTERESTS IN

MOVABLES

- Dysfunctional registry

- No registry, lack of publicity, no transparency

LACK OF KNOW HOW ON

MOVABLE ASSET LENDING

- Have never done that type of financing

- Do not have the staff with skills

NOT INTERESTED

- Not their type of business

- No competition in the lending market

- Revenues from other sources (TB)

- Other reasons

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3) WHAT IS IFC’S BUSINESS

MODEL FOR DELIVERING

TECHNICAL ASSISTANCE IN THIS

AREA?

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SECURED TRANSACTIONS OVERVIEW

OBJECTIVES: Increasing access to sustainable credit for businesses, in

particular for SMEs

CLIENTS: Governments (Central Banks, Ministry of

Finance/Justice/Trade)

FORM OF ASSISTANCE: Advisory Services, technical assistance

BENEFICIARIES: Financial Institutions, NBFIs, Firms (mostly SMEs),

Households and Consumers

IMPACT / RESULTS: (1) Value of financing facilitated secured with

movable property (US$) and; (2) Number of Firms/SMEs with increased

access to credit

FUNDING MODEL: IFC funds, Pooled donor funds, client contributions

IFC’s VALUE ADDED: In house expertise, global local presence,

developed methodology and M&E standards, strong niche area.

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BUSINESS AND DELIVERY MODEL

• BUILDING THE CAPACITY OF STAKEHOLDERS

• MONITORING IMPACT

• CREATION OF ELECTRONIC REGISTRY

• LEGAL AND REGULATORY FRAMEWORK

1. Create Committee

2. Draft new Secured Transactions Law

3. Awareness

4. Submit Law to Parliament

5. Draft registry regulations

1. Determine Government Agency to Host Registry

2. Develop Technical Specifications

3. Hardware and Software Procurement

4. Training/awareness

5. Launching of registry

1. Training and awareness to main stakeholders (both public and private sector) on the new system, including law and registry

2. Training on movable asset financing for Financial Institutions

1. Develop monitoring and evaluation plan including baseline information

2. Conduct periodic monitoring of impact through registry indicators and surveys

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4) AFRICA PORTFOLIO AND

EARLY RESULTS

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CURRENT PROJECT PORTFOLIO

AFRICA

•Ghana

•Malawi

•Rwanda

•OHADA Regional Initiative

•South Sudan

• Liberia

MENA

•Afghanistan

•Jordan

•West Bank & Gaza

•Yemen

EAST ASIA & PACIFIC

•Cambodia

•China

•Lao PDR

•Philippines

•Vietnam

SOUTH ASIA

• India

•Nepal

•Sri Lanka

ECA

•Azerbaijan

•Belarus

•Moldova

•Tajikistan

•Uzbekistan

LAC

•Colombia

• Haiti

• AFRICA (Uganda, Zambia, Sierra Leone)

PIPELINE

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GHANA

LEGAL FRAMEWORK

•Borrowers and Lenders Act, 2008

COLLATERAL REGISTRY

•Collateral registry in the Bank of Ghana

NEXT STEPS

•Revising Law (new draft)

•Modernizing the collateral registry

•Awareness and capacity building

Funded by

EARLY RESULTS

More than

10,000 loans

registered by Banks

and NBFIs

More than

US$1.5 billion in

financing

Types of

collateral:

Inventory &

receivables (25%),

Household goods

(20%), motor

vehicles (19%)

IMPACT ON SMEs: A PRACTICAL CASECAL BANK: PURCHASE FINANCING SCHEME FOR GOLD MINING

Objective: develop a local supply chain for big mining

corporates, through local SME service providers

Services: transportation, mechanics, food, lighting equipment

More than 100 local SMEs have received more than US$ 10

million. Created hundreds of new jobs.

SMEs use movable assets (contracts, receivables, equipment) as

collateral

No defaults in the 30 months that program has been operating

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OTHER COUNTRIES

• New Uniform Act on Secured Transactions, passed by OHADA Council of Ministers 2010

• NEXT STEPS: (1) Regional registry being designed; (2) Implementation of 3 - 4 national registries as pilots (2011-2013); (3) Capacity building

OHADA

• New Personal Property Security Act drafted and approved by Cabinet

• NEXT STEPS: (1) Enactment of the PPSA by Parliament; (2) Drafting of regulations; (3) Registry design and development; (4) Capacity building

MALAWI

• New Secured Transactions Law, enacted last year, 2010

• NEXT STEPS: (1) Drafting of regulations; (2) Registry design and development; (3) Capacity building

LIBERIA

EXPECTED IMPACT IN AFRICA OVER NEXT 4 YEARS:

MORE THAN 1 US$ BILLION TO MORE THAN 5,000 SMEs

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5) IMPACT OF REFORMS IN

OTHER REGIONS

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IMPACT OF SECURED TRANSACTIONS REFORM IN

ASIA AND LATIN AMERICA

MEXICO

• Law reform and new centralized online registry (October 2010)

• In 6 months number of loans secured with movables have multiplied by 4, to total of 20,000. 50% of loans in the agricultural sector

• Loans represent US$ 50 Billion in financing

• Businesses have saved more than US$ 1 Billion in fees

HONDURAS

• Law reform and new centralized online registry (March 2011)

• More than 800 loans registered in 2 months, mostly for SMEs

CHINA

• Law reform (2007) and new centralized online registry for accounts receivables and leasing (2008)

• Project has led to more than US$ 1.5 trillion in financing secured with receivables, mostly to SMEs (more than 50% of the loans)

• More than 75,000 SMEs have received loans

• Project has led to the development of the factoring and leasing industries

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CONCLUSION

THANK YOU!

Alejandro Alvarez de la Campa

Program Manager, IFC Secured Transactions

aalvarez1@worldbank.org