Reforming Collateral Laws to Expand Access to Finance
Most readers, especially those with car loans or home mortgages, know about "collateral"--property that the lender can take away from the borrower in the event that the borrower defaults. In low/middle income countries, it is understood that conservative lenders exclude firms from credit markets with their excessive collateral requirements. Usually, this is because only some property is acceptable as collateral: large holdings of urban real estate and, sometimes, new motor vehicles. Microenterprises, SMEs, and the poor have little of this property but they do have an array of productive assets that could easily be harnessed to serve as collateral. It is only the legal framework which prevents firms from using these assets to secure loans. In countries with reformed laws governing collateral, property such as equipment, inventory, accounts receivable, livestock are considered excellent collateral. This book aims to better equip project managers to implement reforms to the legal and institutional framework for collateral (secured transactions). It discusses the importance of movable property as a source of collateral for firms, the relationship between the legal framework governing movable assets and the financial sector consequences for firms (better loan terms, increased access, more competitive financial sector), and how reforms can be put in place to change the lending environment.
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access to credit accounts receivable assets Bolivia borrower borrower’s capital chapter claims continuation in proceeds costs credit line creditor dealers debt collection debtor default diagnostic study donor draft law EBRD economic impact enforcement Enterprise Surveys equipment example fees filing archive finance financial sector firms fixtures framework for secured future crop Heywood Fleisig important initial legal assessment International inventory issues law of secured lawyers legal framework loans secured macroeconomic microcredit Microfinance institutions middle-income countries model law Modern systems mortgage movable property nonbank Nuria offer operates Peņa percent permit pledge priority rules problems property as collateral real estate reformed law registry repossession require risk Romania secured by movable Secured Financing secured lending secured transactions law secured transactions reform securitization security agreement security interest serve as collateral stakeholders SYSTEMS FOR SECURED task manager typically Uniform Commercial Code Unreformed systems unsecured loans World Bank Group’s
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