Secured Transactions and Collateral Registries: A Global Perspective Access to Finance, IFC

Transcription

1 Secured Transactions and Collateral Registries: A Global Perspective Access to Finance, IFC 5 th Financial Infrastructure and Risk Management Training, Rabat, Morocco, September 2014 Alejandro Alvarez de la Campa Global Product Leader STCR

2 The World Bank Group

3 1. Why IFC s Focus on Secured Transactions?: Clear Market Failure in Africa and MENA

4 SME FINANCE GAP 400 million SMEs in developing world 50% unserved or underserved 1. Why is IFC 14% with loan or line of credit Focusing in this Area?: Clear Market Failure 4

5 COLLATERAL GAP Mismatch between assets owned by companies and collateral required Capital Stock of Firms Collateral Taken by FIs 22% 44% 27% 34% 73% Vehicles/machinery/equipment Accounts Receivable Land / Real Estate Land / Real Estate Movable property Source: World Bank Enterprise Surveys

6 Current MENA- Africa Context 6

7 SNAPSHOT OF SECURED TRANSACTIONS AND ACCESS TO CREDIT IN BOTH REGIONS Access to a Line of Credit or Loans from Financial Institutions (% of Firms) Use of Bank Loans to Finance Investments (% of Firms) Eastern Europe & Central Asia Latin America & Caribbean South Asia Sub- Saharan Africa Middle East & North Africa 10 0 Eastern Europe & Central Asia OECD Latin America & Caribbean South Asia Sub- Saharan Middle East Africa & North Africa v Only one of the MENA countries (Afghanistan) has a modern secured transactions law. The rest, very fragmented legal frameworks with provisions in many laws. Only one (Afghanistan) of the MENA countries has modernized its collateral registry. Palestine is launching one as well. v In Sub-Saharan Africa, only two countries (Ghana and Liberia) have developed modern registries and four countries have reformed the laws in line with international accepted standards (Ghana, Malawi, Rwanda and Liberia)

8 SMEs AND FINANCIAL INDICATORS FOR MENA Economy Year Percent of firms identifying access to finance as a major constraint Percent of firms with a bank loan/line of credit Proportion of loans requiring collateral (%) Value of collateral needed for a loan (% of the loan amount) Percent of firms using banks to finance investments Proportion of investments financed by supplier credit (%) All Countries Middle East & North Africa Djibouti Algeria Egypt, Arab Rep Iraq Jordan Lebanon Morocco Syrian Arab Republic West Bank and Gaza Yemen, Rep Source: World Bank Enterprise Surveys

9 SMEs AND FINANCIAL INDICATORS FOR AFRICA I Economy Percent of firms identifying access to finance as a major constraint Percent of firms with a bank loan/line of credit Proportion of loans requiring collateral (%) Value of collateral needed for a loan (% of the loan amount) Percent of firms using banks to finance investments Proportion of investments financed by supplier credit (%) All Countries Sub- Saharan Africa Angola (2010) n.a Benin (2009) Botswana (2010) Burkina Faso (2009) Burundi (2006) Cabo Verde (2009) Cameroon (2009) Central African Republic (2011) Chad (2009) Congo, Dem. Rep. (2013) Congo, Rep. (2009) Côte d'ivoire (2009) Djibouti (2013) Eritrea (2009) n.a Ethiopia (2011) Gabon (2009) n.a Ghana (2007) Guinea (2006) n.a Guinea- Bissau (2006) n.a. n.a Kenya (2013) Lesotho (2009)

10 SMEs AND FINANCIAL INDICATORS FOR AFRICA II Economy Percent of firms identifying access to finance as a major constraint Percent of firms with a bank loan/line of credit Proportion of loans requiring collateral (%) Value of collateral needed for a loan (% of the loan amount) Percent of firms using banks to finance investments Proportion of investments financed by supplier credit (%) Liberia (2009) Madagascar (2009) Malawi (2009) Mali (2010) Mauritania (2006) Mauritius (2009) Mozambique (2007) Namibia (2006) Niger (2009) Nigeria (2007) Rwanda (2011) Senegal (2007) Sierra Leone (2009) South Africa (2007) Swaziland (2006) Tanzania (2013) Togo (2009) Uganda (2013) Zambia (2013) Zimbabwe (2011)

11 LAGGING BEHIND IN GETTING CREDIT INDICATORS Borrowers and Creditors Right Index (0-10) OECD 7 Europe &Central Asia 7 East Asia & Pacific 7 Latin America & Caribbean 6 South Asia 6 Sub-Saharan Africa 6 Middle East & North Africa 3 Average Bureau Coverage (% of adults) Source: World Bank Doing Business 2014 OECD LaHn America & Caribbean Europe & Central Asia East Asia & Pacific Middle East & North Africa South Asia Sub- Saharan Africa 6,6 9,6 1,7 9,9 0,6 7,7 3,5 5,9 19,7 31,2 33,4 37, , Percent of Adults

12 WHY ARE FINANCIAL INSTITUTIONS NOT WILLING TO TAKE MOVABLE PROPERTY AS COLLATERAL? Lack adequate legal framework Lack registry of security interests in movables Lack know how on movable asset lending Lack interest Restrictions on types of assets Dysfunctional Registry/ No Registry No experience with this type of financing Not their type of business Lack of clear creditor priority Lack of publicity Do not have staff with necessary skills No competition in the lending markets Enforcement issues No transparency Revenue from other sources (TB)

13 2. Potential Impact of Secured Transactions Reforms in Access to Credit

14 BENEFITS OF A SOLID SECURED TRANSACTIONS SYSTEM BENEFITS OF A SOLID SECURED TRANSACTIONS SYSTEM INCREASES ACCESS TO CREDIT REDUCING THE RISK OF CREDIT - Underserved MSMEs and women entrepreneurs - Promotes risk management, prudent lending - - Better REDUCES THE COST OF CREDIT interest rates - Move from informal to formal financing - Cost savings for businesses INCREASES MARKET COMPETITION - Development of industries (factoring and leasing) - NBFIs - Credit risk diversification: immovable and movable - Sector diversification in PROMOTES CREDIT the portfolio DIVERSIFICATION 14

15 Collateral Registries for Movable Assets: Does their Introduction Spur Firms Access to Finance? by Inessa Love, Sole Martínez Pería and Sandeep Singh Variable Access to finance Access to a loan % of working capital financed by banks Interest rates Loan maturity Effect 8 percentage points 7 percentage points 10 percentage points 3 percentage points 6 months Study also provides evidence that the impact of the introduction of movable registries on firms access to finance is larger among smaller firms, who also report a reduction in subjective, perception-based measure of finance obstacles. 15

16 3. IFC s Secured Transactions Programs: Business and Delivery Model

17 SECURED TRANSACTIONS SYSTEMS Legal and institutional framework to facilitate the use of movable property as collateral for both business and consumer credit Bank Accounts Industrial and agricultural equipment Accounts receivable Durable consumer goods Inventory and raw goods Intellectual Property rights Agricultural products (crops, livestock, fish farm) Vehicles

18 CURRENT GLOBAL PORTFOLIO STCR AFRICA Burundi Ghana Liberia Malawi Nigeria Sierra Leone South Africa Zambia MENA Afghanistan Jordan Lebanon UAE West Bank & Gaza Morocco EAST ASIA & PACIFIC Cambodia China Lao PDR Mongolia Philippines Vietnam Indonesia SOUTH ASIA India Sri Lanka ECA Azerbaijan Belarus Tajikistan Uzbekistan LAC Belize Chile Colombia Costa Rica Dominican Republic Haiti Trinidad and Tobago Pipeline Regional West & Central Africa, South Sudan, Uganda, Egypt, Pakistan 18

19 SECURED TRANSACTIONS OVERVIEW Clients Beneficiaries Funding Model Value Added Governments (Central Banks, Ministry of Finance/Economy/ Justice/Trade) Financial Institutions, NBFIs, Firms (mostly MSMEs), Households and Consumers IFC funds, Pooled donor funds, client contributions In-house expertise, global /local presence, developed methodology and M&E standards, demonstrated impact. IMPACT / RESULTS: (1) Value of financing facilitated secured with movable property (US$) and; (2) Number of Firms/MSMEs with increased access to credit

20 BUSINESS AND DELIVERY MODEL HOLISTIC APPROACH LEGAL AND REGULATORY FRAMEWORK MONITORING IMPACT & COMMUNICATION S 1. Create Committee 2. Draft new STCR Law 3. Raise awareness 4. Submit Law to Parliament 5. Draft regulations 6. Revise Central Bank regulations 1. Develop M&E plan including baseline information 2. Conduct periodic monitoring of impact through registry indicators & surveys 3. Independent evaluations 4. Communications 1. Support drafting of technical specifications 2. Support procurement process 3. Support operation of the registry 4.Training/awareness 1. Training and awareness raising stakeholders (public & private stakeholders), including law and registry 2. Technical training to industry players CREATION OF ELECTRONIC REGISTRY 1 2 BUILDING THE CAPACITY OF STAKEHOLDERS 4 3

21 PRINCIPLES FOR AN EFFECTIVE SECURED TRANSACTIONS SYSTEM Broad scope Enforcement Effective Secured Transactions System Creation Priority Publicity / registration 21

22 COLLATERAL REGISTRIES: POSSIBLE TYPES Nature of the data: public Managed by the Government (Central Bank, Ministry) Managed by the Private Sector (Chamber of Commerce in Colombia/ Honduras, Credit Bureau in Sri Lanka) Outsourced management of data: cloud solution Institutional set-up: stand alone/combined Stand alone institution in Central Bank or Government Ministry (Ghana, Liberia) Combined platform with other registries/agencies. Business registries (Malawi, Zambia, West Africa), Credit Bureaus (Egypt) National Centralized Registry for all security interests in movable and immovable property (mortgages): Ghana

23 COLLATERAL REGISTRY IN MALAWI LIKELY FEATURES Single data source for all collateral, all debtors, centralized registry Web based system accessible 24/7 Notice based system, limited information, no documents Registrations done by creditors or their representatives Information available to the public in general for searches Flat reasonable registration fees to cover the cost of the operation, non cash payments Limited role of registry in verification, not liable for information entered Search criteria on identification of debtor and serial numbered collateral Secured registry data, data back up 23

24 TRAINING AND CAPACITY: A KEY ELEMENTS OF OUR ASSISTANCE Educating Stakeholders, Users and Beneficiaries Ø General Awareness Workshops for main public and private sector stakeholders Ø Training to judges, legal community Ø Training to Financial Institutions on new internal credit policies, valuation of collateral/field examining/collateral management, risk management and enforcement/collection. Ø IFC Investment instruments (Global Trade Supply Finance, Global Warehouse Receipts Finance, Global Facility for Movable Asset-Based Lending)

25 IFC S GLOBAL WAREHOUSE FINANCE PROGRAM (GWFP) Risk mitigation for banks food/agriculture portfolio Supports banks when lending to the agricultural sector against warehoused commodities Banks can support increased use of Warehouse Receipts or CMA by trading companies or producers Prequalified sub-borrowers Funded or unfunded: risk sharing Facility tenor: one year extendable up to three years Average transaction tenor: 4-6 months Bank Agricultural producers 3. IFC channels funding or guarantees for up to 50% on portfolio of warehouse receipts 4. WHR facility 1. Grain/produce stored in third-party warehouse Program partners Program partners cofinance with funding or counter-guarantees 2. Warehouse receipts issued by warehouse Storage company

26 GWFP HSBC-CMDT MALI 26

27 IFC S GLOBAL TRADE SUPPLIER FINANCE (GTSF) Funding and risk mitigation for banks supply chain finance clientele Provides banks with additional credit capacity to support clients suppliers from higher-risk countries Provides funded and unfunded risk-sharing of up to 100% of a client s accounts receivable IFC may also provide liquidity and discount A/R itself A/R is discounted using market-based pricing IFC accepts bank proposed discount rate on risk-shared receivables

28 IFC S GLOBAL TRADE SUPPLIER FINANCE (GTSF) Global Trade Supplier Finance AT-A-GLANCE $1.6B cumulative commitments 700+ suppliers financed 7 countries supported: China, India, Indonesia, Mexico, Nicaragua, Sri Lanka, Vietnam By channeling supplier financing in India, we can support as many as 20,000 guar growers, like Rawat Singh and his family, in accessing additional credit to improve their livelihoods.

29 4. Impact on Reforming Jurisdictions of Sub-Saharan Africa and other Regions

30 COLLATERAL REGISTRIES - GHANA: IMPACT ON SMEs THORUGH SUPPLY CHAIN FINANCE CAL BANK: Purchase Financing Scheme for Gold Mining Developed a local supply chain for big mining corporations, through local SME service providers 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 OVERALL 60,000 loans registered for a value of US$14 billion. More than 8,000 SMEs and 30,000 Micro received loans. Collateral by type: Inventory & receivables (25%), Household goods (20%), vehicles (19%)

31 NEWEST MODERN ELECTRONIC COLLATERAL REGISTRY IN AFRICA: LIBERIA 31

32 IMPACT ON CONFLICT AFFECTED COUNTRIES: AFGHANISTAN COLLATERAL REGISTRY AFGHANISTAN COLLATERAL REGISTRY STATISTICS (As of January 2014) Commercial Bank Users Government Account (FSD/DAB) Micro Finance Institutions (MFIs) Total Number of Registered Notices Total Number of Search Total Value of Registered Credit Chargor Size (Less than 15 Employees) Chargor Size (Less than 30 Employees) Chargor Size (Less than 50 Employees) Chargor Size (Less than 100 Employees) Chargor Size (More than 100 Employees) Ownership Composition (Male) Ownership Composition (Female) Ownership Composition (Male & Female) Indicators All Billion AF US$ = 50 AF Billion AF = $575 million 32

33 RESULTS OF CREDIT COLLATERAL REGISTRY PROJECTS IN OTHER REGIONS In Colombia new Secured Transactions Law in 2013 and new centralized collateral registry in March 2014 In 3 months more loans registered than in the last 30 years. More than 16,000 loans registered for a value of US$6 billion In China, legal reform (2007) and new centralized online registry for accounts receivables and leasing (2008) More than US$ 6 trillion in financing with receivables, mostly to SMEs (60%) Development of the factoring and leasing industries In Vietnam, legal reform and new centralized online registry (March 2012) Over 200,000 loans have been registered to more than 100,000 SMEs Total volume of financing through the registry is US$ 2.5 billion

34 5. Synergies Between Credit Reporting and Secured Transactions Systems

35 CREDIT REPORTING AND SECURED TRANSACTIONS: SAME OBJECTIVES AND SYNERGIES SIMILAR DATA 1. Debtor, creditors, loans, collateral 2. Important source of data for policy makers SAME COUNTERPARTS AND USERS, SAME BENEFICIARIES 1. Central Banks 2. Banks and non-bank financial institutions 3. Business community and consumers CR/STCR SAME OBJECTIVES 1. Increase access to credit 2. Reduce risk of credit 3. Provide credit data to financial and nonbank financial institutions 4. Improve Financial Stability. TECHNOLOGY PLATFORM & ECONOMIES OF SCALE 1. Possibility of sharing IT resources (hardware, disaster recovery site, etc) 2. Possibility of sharing facilities 3. Information sharing

36 CREDIT REPORTING AND SECURED TRANSACTIONS: DIFFERENCES 1. Private data (secrecy principles) 2. Business model is commercial (generates revenue) 3. Both public and private registries 4. Several CBs can compete in one jurisdiction 5. Many data sources (positive and negative information) 6. Provides data in an informational way 1. Public data (publicity, data available to all) 2. Business model is public service (no revenue generation) 3. Always public registries (can be managed privately) 4. One single registry for movable collateral 5. Information on security interests (loans secured with movable property) 6. Information contained establishes priority rights for creditors

37 FINANCIAL INFRASTRUCTURE: NEXT STEPS STRONG BENEFITS AND SYNERGIES Benefits and synergies offset the differences Differences to be addressed by appropriate governance model and service level agreement between the bureau and government JOINT APPROACH: HOW? Both registries co-hosted under the same institution (public or private) and share facilities, hardware, servers, office space Different software systems and interfaces but platforms share data JOINT APPROACH: WHERE? Small markets with limited infrastructure, countries with same counterpart, similar timeframes Pilots in Sub-Saharan Africa (Burundi) selected countries in other regions (Sri Lanka) 37

38 6. Reform Challenges and Lessons Learned

39 LESSONS LEARNED Partner with a strong institution with strong political clout. Public and private commitment is critical. Reform based on international accepted standards can be done in any legal system but more difficult to accept in civil law countries Local ownership is key: client monetary or in-kind contributions; local lawyers, local software solutions and IT support strengthen client ownership and sustainability Solid legal regime is important but so is a modern well designed registry and extensive training 5 Financial institutions need to be willing to lend. If they don t you can have the best system in the world but the impact will be insignificant

40 THANK YOU Alejandro Alvarez de la Campa Global Product Leader, IFC Secured Transactions