Imagination at work.November 2015

Secured Transaction ReformBenefiting SMEsChris WohlertGE Capital International

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MSME/SME access to finance impaired by inadequate secured lending infrastructure

Leveraging moveable collateral difficult, costly or impossible in many economies

MSME/SME prevented from achieving growth potentialSecured lending is the BRIDGE between reputational

collateral and capital markets access for MSME, SME and mid-market firms ….

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The Challenge…

Benefits of Secured Transaction Reform Development of functioning laws and collateral

registries governing secured transactions provides greater access to credit for enterprises, including MSMEs.

Recent reforms in certain economies have led to both greater access to and lower cost of finance for SMEs

Diversification of financial services sector as non-bank financial institutions expanded into secured lending to SMEs

In China2, following reforms, more than $570B in financing secured by accounts receivable (40% of which supported SMEs) extended by lenders

Led to development of both commercial leasing and factoring industries

SME/MSMEs benefit … time to build the bridge

1 Collateral Registries for Moveable Assets: Does their Introduction Spur Firms’ Access to Bank Finance?; Inessa Love, Maria Soledad Martinez Peria and Sandeep Singh; http://www.ifc.org/wps/wcm/connect/8891c280415edb709ba3bb9e78015671/Collateral%252BRegistries%252Bfor%252BMovable%252BAssets%252B%252BDoes%252BTheir%252BIntroduction%252BSpu%252BFirms%252BAccess%252Bto%252BBank%252BFinance.pdf%3FMOD%3DAJPERES&sa=U&ved=0CAgQFjACahUKEwjRzfrDvNXHAhUD5KYKHQFwCzM&client=internal-uds-cse&usg=AFQjCNEb3ml0qAuv54daPPP74q-URicSdw2Secured Transaction Systems and Collateral Registries, International Finance Group, January 2010.

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In the chart above, this study1 compared firms’ average access to finance before and after registry reform as compared to economies that did not implement such reforms

Secured Transaction Reform – Key Issues

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Transparency

EnforceabilityEfficiency

Transparency: Security interest is accessible, and secured creditor can readily see all competing interests.

Enforceability: High degree of confidence in ability to secure collateral quickly in event of debtor default – even for moveable and rapidly depreciating assets (inventory & AR)

Efficiency: Process to register is simple, fast, and cheap.

Maximising access to secured credit for SMEs depends upon confidence of the secured creditor in the value of the collateral – and ability to perfect and enforce quickly and efficiently.

Three pillars … plus education

Recent Reforms across APECCHINA: Enforcement framework continues to be enhanced providing greater certainty for secured lenders following the release of the latest Judicial Interpretations of the Law on Civil Procedure issued January ’15; factoring judicial interpretations issued November 2014 and September 2015 PHILIPPINES: Development of a self-service chattel mortgage registration system in process, initially launching through major banks with planned later expansion to an online system. VIETNAM: Coordination with IFC to jointly train local bankers on moveables lending through symposiums and workshops leveraging industry and subject matter experts, resulting in a near doubling of security interest registrations and registry searches between 2012 and 2014.

Reforms are progressing … at various speeds

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