SME Finance Policy Guide

28 GLOBAL PARTNERSHIP FOR FINANCIAL INCLUSION
• Flat and reasonable fees for registrations and
searches;
• Registrar role limited to management, not to
verify and modify information in the registry
• Non-cash payments (debit/credit cards, electronic
transfers, or pre-paid accounts);
• Clearly defined liability of the registry for errors;
and
• Secured and protected registry data, with established
disaster recovery sites.
• Establishing clear priority schemes for creditors. A clear priority
scheme is key to determine the sequence in
which competing claims to the collateral will be satisfied
when the debtor defaults on one or more of
the claims.
• Improving enforcement mechanisms. Enforcement and collection
of debts upon defaulted loans is a major
impediment for increasing access to credit. Speedy,
effective, and inexpensive enforcement mechanisms
are essential to realizing security interests. Enforcement
is most effective when parties can agree on rights and
remedies upon default, including seizure and sale of
the collateral outside the judicial process.
A collateral regime designed to facilitate increased
access to finance for SMEs is likely to include:
• A wide range of allowable collaterals (especially
movable collateral);
• The establishment of clear priority schemes for creditors,
clarifying the rights of secured creditors;
• Efficient collateral registries, making priority interests
publicly known; and
• Effective enforcement of collateral in the case of
default (both seizure and disposition).
Challenges and priorities for LDCs
The main challenges that LDCs face are: (i) lack of
appropriate secured lending legal and regulatory
frameworks; (ii) weak institutional capacity to manage
a modern collateral registry system; (iii) limited
knowledge on the importance of having solid secured
Unleashing the Potential of Movable Assets as Collateral:
the Cases of China and Mexico
China - In 2005, China embarked upon a reform of its movable collateral framework to encourage financing against
valuable movable assets. Before the reform, use of movable collateral, especially intangible collateral such as
accounts receivable, under Chinese law was a key constraint for SME financing, as bank lending was largely based on
real estate collateral, which SMEs typically do not possess. The reform model had three phases: development of the
property law; creation of an electronic registry for accounts receivable and leases; and training of lenders to use
movable assets as a basis for lending. Following China’s reform of a movable collateral framework and establishment
of the receivables registry, SMEs can now use a wider range of assets, such receivables, as a basis for borrowing. In
the three years (2008-2011) of operation of the new system, lenders have granted more than US$ 1.5 trillion in loans
secured with receivables to more than 100,000 businesses, more than half of them SMEs. The reform of the systems
has also led to the development of the leasing and factoring industries, which have grown substantially over the same
time period.
Mexico - Mexico has progressively introduced reforms in its secured transactions legal system over the past few years.
But the reform that transformed the lending scenario for SMEs was the creation of a nationwide movable collateral
registry in October 2010. With the new registry, the number of loans to businesses has increased by a factor of four,
to around 23,000 in June of 2011. These 23,000 loans have generated more than US$70 billion in financing to businesses,
SMEs accounting for more than 90 percent of the firms receiving those loans. The reform has also led to a
cumulative estimated saving for borrowers of US$ 1.3 billion in registration fees associated to the registration of the
security interest in the previous system. About half of the loans granted have gone to agri-businesses and farmers.
Source: G20 Stocktaking Report, 2010; de la Campa, 2010.