SME Finance Policy Guide

G-20 SME FINANCE POLICY GUIDE
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Figure 2 Mismatch Between Firm Assets and Collateral Requirements:
By composition of assets held
by firm
By composition of assets banks accept
as collateral
Machinery
Land and
Buildings
Machinery
Accounts
Receivable
Accounts
Receivable
Land and
Buildings
Source: World Bank Group Enterprise Surveys, average from 60 countries.
• Creating unitary legal systems vs. fragmented laws. Creating or
drafting a stand-alone law to regulate all aspects of
security interests in movable property (secured transactions
or personal property law) is considerably more
efficient and creates less conflicts and uncertainty than
revising existing provisions in multiple laws (commercial
code, civil code, chattel mortgage law, etc.).
• Establishing a broad scope of secured transactions law. This can
be accomplished by:
• Allowing all types of assets (both tangible and
intangible, present and future) to be used as collateral
for loans;
• Allowing broad pools of assets (revolving assets)
with a generic description of the assets to be
accepted as collateral to facilitate the use of credit
revolving facilities;
• Adopting the “functional approach” to secured
transactions, which should allow equal treatment
to all transactions secured by movable property no
matter what their contractual nature (financial
leases, consignments, assignment of receivables,
secured sales contracts, loans secured with movable
property, retention of title, etc.) with regard to
publicity and priority vis a vis third parties; and
• Allowing the automatic extension of the security
interests to products and proceeds of the collateral
to protect the value of the security interest.
• Simplifying the creation of security interests in movable property.
This involves eliminating cumbersome and
unnecessary formalities for the creation and enforceability
of security interests in movable property.
• Modernizing movable collateral registries. The collateral registry
is the cornerstone of a functioning and efficient
secured transactions system. The registry fulfills an
essential function of the system, which is to notify
parties about the existence of a security interest in
movable property (existing liens) and to establish the
priority of creditors vis a vis third parties. Best practice
elements of a modern collateral registry include:
• Single data source (centralized) registry for all
security interests, including non-consensual liens;
• Web-based electronic system accessible 24/7;
• Notice-based system, meaning that only information
about the creditor, the debtor (who can be
both a legal or natural person), the collateral, and
the amount of the obligation/loan needs to be
entered, without the need of any documentation
sustaining that information;
• Registrations to be done by creditors or their legal
representatives directly into the system;
• Information available to the general public for
searches;
• Search criteria that includes, at least, debtor identifier
and serial numbered collateral;