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AfDB-EMRC SME Forum Session 7 Alejandro Alvarez
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AfDB-EMRC SME Forum Session 7 Alejandro Alvarez

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  • 1. IFC’s Global Secured Transactionsand Collateral Registries Program Alejandro Alvarez de la Campa, IFC Lisbon, Portugal, June 6-7, 2011
  • 2. OUTLINE1) WHAT IS SECURED TRANSACTIONS?2) WHY IS IT IMPORTANT FOR AFRICA?3) HOW DOES IFC IMPLEMENT THIS WORK?4) AFRICA PORTFOLIO AND EARLY RESULTS5) IMPACT OF REFORMS IN OTHER REGIONS 2
  • 3. 1) WHAT DO WE MEAN BYSECURED TRANSACTIONS? 3
  • 4. WHAT DO WE MEAN BY SECURED TRANSACTIONS SYSTEMS?SECURED TRANSACTIONS SYSTEMS: LEGAL AND INSTITUTIONALFRAMEWORK TO FACILITATE THE USE OF MOVABLE PROPERTY ASCOLLATERAL FOR BOTH BUSINESS AND CONSUMER LOANSMOVABLE PROPERTY: ALL TYPES OF MOVABLE ASSETS, TANGIBLE ANDINTANGIBLE, 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. 4 4
  • 5. 2) WHY IS SECURED TRANSACTIONSIMPORTANT FOR AFRICA? 5
  • 6. SME FINANCE GAP SME FINANCE GAP IN SUB-SAHARAN AFRICA Between US$ 140-170 Billion Source: McKinsey & Co. Global Financial Inclusion Practice 6
  • 7. COLLATERAL GAP LACK OF “ADEQUATE” COLLATERAL IS A MAJOR IMPEDIMENT Did not apply: Collateral Credit Application Rejected: - Credit Application Rejected Did Not Apply: Collateral Requirements Too High or Thought Insufficient Collateral Insufficient Collateral Requirements too High Application Would be Rejected 80% 35% 70% 30% 60% 25% 50% 20% 40% 30% 15% 20% 10% 10% 5% 0% 0% America ECA South Africa East Asia Asia Latin Africa East Asia ECA Latin South America Asia MISMATCH BETWEEN ASSETS OWNED BY COMPANIES AND COLLATERAL REQUIRED 22%Capital Stock of Firms Collateral Taken by FIs 27% 44% 34% 73% Vehicles/machinery/equipment Accounts Receivable Land / Real Estate Movable property Land / Real Estate Source: World Bank Enterprise Surveys 7
  • 8. WEAK BORROWERS AND CREDITORS RIGHTS WEAK CREDITORS RIGHTS DESPITE 1. G22, 1998 2. BASEL II, 2004 3. G20, 2010 Middle High Europe & LatinBORROWERS AND East Asia & South Sub-Saharan East & income: Central America &CREDITORS RIGHTS Pacific Asia Africa North OECD Asia Caribbean Africa INDEX (0-10) 6.9 6.6 6.1 5.5 5.4 4.6 3.0 Source: World Bank Doing Business 2011 8
  • 9. WHY ARE FINANCIAL INSTITUTIONS NOT WILLING TO LEND TAKING MOVABLE PROPERTY AS COLLATERAL? LACK OF LACK OF KNOW NOT ADEQUATE LACK OF REGISTRY OF HOW ON INTERESTED LEGAL MOVABLE ASSET FRAMEWORK SECURITY - Not their type of INTERESTS IN LENDING business- Restrictions on MOVABLES - Have never done - No competition intypes of assets that type of the lending market- Priority of - Dysfunctional financing - Revenues fromcreditors unclear registry - Do not have the other sources (TB)- Enforcement - No registry, lack of staff with skills - Other reasonsissues publicity, no transparency 9
  • 10. 3) WHAT IS IFC’S BUSINESSMODEL FOR DELIVERINGTECHNICAL ASSISTANCE IN THISAREA? 10
  • 11. SECURED TRANSACTIONS OVERVIEWOBJECTIVES: Increasing access to sustainable credit for businesses, inparticular for SMEsCLIENTS: Governments (Central Banks, Ministry ofFinance/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 withmovable property (US$) and; (2) Number of Firms/SMEs with increasedaccess 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. 11
  • 12. BUSINESS AND DELIVERY MODEL • LEGAL AND • CREATION OF REGULATORY ELECTRONIC FRAMEWORK REGISTRY 1. Determine Government Agency to 1. Create Committee Host Registry 2. Draft new Secured 2. Develop Technical Transactions Law Specifications 3. Awareness 3. Hardware and Software Procurement 4. Submit Law to Parliament 4. Training/awareness 5. Draft registry 5. Launching of regulations registry 1. Develop monitoring 1. Training and and evaluation plan awareness to main including baseline stakeholders (both information public and private 2. Conduct periodic sector) on the new monitoring of impact system, including law through registry and registry indicators and surveys 2. Training on movable asset financing for Financial Institutions • MONITORING • BUILDING THE IMPACT CAPACITY OF STAKEHOLDERS 12
  • 13. 4) AFRICA PORTFOLIO ANDEARLY RESULTS 13
  • 14. CURRENT PROJECT PORTFOLIOAFRICA MENA EAST ASIA SOUTH ECA LAC• Ghana • Afghanistan & PACIFIC ASIA • Azerbaijan • Colombia• Malawi • Jordan • Cambodia • India • Belarus • Haiti• Rwanda • West Bank • China • Nepal • Moldova• OHADA & Gaza • Lao PDR • Sri • Tajikistan Regional • Yemen • Philippines Lanka • Uzbekistan Initiative • Vietnam• South Sudan• Liberia PIPELINE • AFRICA (Uganda, Zambia, Sierra Leone) 14 14
  • 15. GHANA EARLY RESULTSLEGAL COLLATERAL NEXT STEPS  More thanFRAMEWORK REGISTRY •Revising Law 10,000 loans•Borrowers and •Collateral (new draft) registered by Banks Lenders Act, registry in the •Modernizing the and NBFIs 2008 Bank of Ghana collateral registry •Awareness and capacity building  More than US$1.5 billion in financing  Types of IMPACT ON SMEs: A PRACTICAL CASE collateral:CAL BANK: PURCHASE FINANCING SCHEME FOR GOLD MINING Inventory & receivables (25%), Objective: develop a local supply chain for big mining Household goodscorporates, through local SME service providers (20%), motor Services: transportation, mechanics, food, lighting equipment vehicles (19%) More than 100 local SMEs have received more than US$ 10million. Created hundreds of new jobs. Funded by SMEs use movable assets (contracts, receivables, equipment) ascollateral No defaults in the 30 months that program has been operating 15
  • 16. OTHER COUNTRIES • New Uniform Act on Secured Transactions, passed by OHADA Council of Ministers 2010 OHADA • NEXT STEPS: (1) Regional registry being designed; (2) Implementation of 3 - 4 national registries as pilots (2011-2013); (3) Capacity building • New Personal Property Security Act drafted and approved by CabinetMALAWI • NEXT STEPS: (1) Enactment of the PPSA by Parliament; (2) Drafting of regulations; (3) Registry design and development; (4) Capacity building • New Secured Transactions Law, enacted last year, 2010LIBERIA • NEXT STEPS: (1) Drafting of regulations; (2) Registry design and development; (3) Capacity building EXPECTED IMPACT IN AFRICA OVER NEXT 4 YEARS: MORE THAN 1 US$ BILLION TO MORE THAN 5,000 SMEs 16
  • 17. 5) IMPACT OF REFORMS INOTHER REGIONS 17
  • 18. IMPACT OF SECURED TRANSACTIONS REFORM INASIA 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 18
  • 19. CONCLUSION THANK YOU! Alejandro Alvarez de la Campa Program Manager, IFC Secured Transactions aalvarez1@worldbank.org 19

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