5
thFinancial Infrastructure and Risk Management Training, Rabat, Morocco, September 2014
Alejandro Alvarez de la Campa Global Product Leader STCR
Secured Transactions and Collateral Registries: A Global Perspective
Access to Finance, IFC
The World Bank Group
1. Why IFC’s Focus on
Secured
Transactions?:
Clear Market Failure in Africa
and MENA
4
1. Why is IFC Focusing in this
Area?: Clear Market Failure
SME FINANCE GAP
400 million SMEs in developing world 50% unserved or underserved
14% with loan or line of credit
COLLATERAL GAP
Source: World Bank Enterprise Surveys
Mismatch between assets owned by companies and collateral required
44%
34%
22%
Vehicles/machinery/equipment Accounts Receivable
Land / Real Estate
73%
27%
Land / Real Estate Movable property
Capital Stock of Firms Collateral Taken by FIs
Current MENA- Africa Context
6
SNAPSHOT OF SECURED TRANSACTIONS AND ACCESS TO CREDIT IN BOTH REGIONS
0 10 20 30 40 50 60
Eastern Europe
& Central Asia Latin America
& Caribbean South Asia Sub-‐Saharan
Africa Middle East &
North Africa
Access to a Line of Credit or Loans from Financial Institutions (% of
Firms)
56.92 54.97
45.02
37.54
25.07
0 10 20 30 40 50 60
Eastern Europe &
Central Asia
OECD Latin
America &
Caribbean
South Asia Sub-‐Saharan
Africa Middle East
& North Africa
Use of Bank Loans to Finance Investments (% of Firms)
49.85
34.18 28.77 27.20 26.21
16.45
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)
SMEs AND FINANCIAL INDICATORS FOR MENA
8
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 28.8 35.5 77.7 190.3 25.4 4.9
Middle East & North Africa 37.9 13.0 78.1 177.5 17.6 7.0
Djibouti 2013 12 30.5 84.1 227.9 24.3 3.6
Algeria 2007 50 31.1 79.0 173.8 8.9 6.3
Egypt, Arab Rep. 2008 31 17.4 84.5 85.5 5.6 0.4
Iraq 2011 46 3.8 49.5 158.8 2.7 8.2
Jordan 2013 43 16.7 89.6 127.0 46.8 7.0
Lebanon 2009 ... 69.4 67.8 160.6 23.8 1.3
Morocco 2007 32 33.4 90.0 171.2 12.3 5.7
Syrian Arab Republic 2009 34 37.4 83.8 124.0 20.7 0.4
West Bank and Gaza 2013 53 6.0 67.8 130.8 9.9 7.9
Yemen, Rep. 2010 35 8.1 99.3 242.9 4.2 8.3
Source: World Bank Enterprise Surveys
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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 28.8 35.5 77.7 190.3 25.4 4.9
Sub-‐Saharan Africa 41.9 23.7 79.4 171 18 3.8
Angola (2010) 38.5 9.5 94.6 n.a. 13.1 2.2
Benin (2009) 66.6 45.6 93.4 306 3.8 0.9
Botswana (2010) 25.5 50 64.7 151.3 32.8 2.8
Burkina Faso (2009) 75 28.4 91.7 175.4 25.6 3.7
Burundi (2006) 50.9 35.3 97.3 266.5 12.3 0.1
Cabo Verde (2009) 36.7 41.5 90.1 176.4 35.3 3.5
Cameroon (2009) 55.1 30.3 83.2 213.1 31.4 10.9
Central African Republic (2011) 46 26 83.9 233.4 25.3 6.4
Chad (2009) 46.5 20.6 75.4 136.4 4.2 9.1
Congo, Dem. Rep. (2013) 39.1 9.4 71.9 152.1 7.1 2
Congo, Rep. (2009) 44.8 12.8 67.7 47.3 7.7 6.6
Côte d'Ivoire (2009) 66.6 11.5 43.3 55.9 13.9 3.4
Djibouti (2013) 11.8 30.5 84.1 227.9 24.3 3.6
Eritrea (2009) 0.9 10.9 66.2 n.a. 11.9 0
Ethiopia (2011) 31.1 15.8 85.3 234 16.6 0.2
Gabon (2009) 30.4 9 52.5 n.a. 6.3 1.2
Ghana (2007) 66.2 22.2 69.8 128.3 16 1.8
Guinea (2006) 58.3 6 55.6 n.a. 0.9 2.3
Guinea-‐Bissau (2006) 71.6 2.8 n.a. n.a. 0.7 1.9
Kenya (2013) 16.8 35.9 73.2 187.8 43.6 5.3
Lesotho (2009) 28.6 32.2 68.8 66.9 32.7 9.1
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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) 35 14 86.9 58 10.1 0.7
Madagascar (2009) 39.4 20.6 86.2 106.1 12.2 8.6
Malawi (2009) 51 40.1 88.1 161.1 20.6 2.5
Mali (2010) 48.1 16.6 58 201.4 29.3 5
Mauritania (2006) 43.6 16 95.3 194.7 3.2 3.7
Mauritius (2009) 46.3 47.4 81.1 59.9 37.5 1.5
Mozambique (2007) 50.1 14.2 90.6 92 10.5 7
Namibia (2006) 18.4 24 71.1 219 8.1 1.6
Niger (2009) 62 29.7 78 229.6 9.3 1.5
Nigeria (2007) 53.1 3.8 78.8 138.8 2.7 2.1
Rwanda (2011) 35.1 45.5 92.4 272.6 23.3 3.2
Senegal (2007) 49.2 15.3 89.1 127.1 19.8 2.9
Sierra Leone (2009) 34.6 17.4 83.4 62.8 6.9 0.2
South Africa (2007) 15.5 30.1 71.2 103.6 34.8 3.9
Swaziland (2006) 32.9 21.9 73 104.5 7.7 5.6
Tanzania (2013) 44.8 15.1 96 263.8 11.8 1
Togo (2009) 58.6 21.6 89.5 237.6 16.9 5.5
Uganda (2013) 20.2 9.8 86.4 159.4 8.2 3.2
Zambia (2013) 27.4 8.8 90.6 236.6 12.2 3.9
Zimbabwe (2011) 63.7 12.5 81.4 261.3 13.1 6
Source: World Bank Doing Business 2014
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
5,9 7,7
9,9
19,7
33,4 37,5
66,7
3,5 0,6
1,7
9,6 6,6
31,2
59
0 10 20 30 40 50 60 70 80
Sub-‐Saharan Africa South Asia Middle East & North Africa East Asia & Pacific Europe & Central Asia LaHn America & Caribbean OECD
Percent of Adults
Average Bureau Coverage (% of adults)
2005 2014
WHY ARE FINANCIAL INSTITUTIONS NOT WILLING TO TAKE MOVABLE PROPERTY AS COLLATERAL?
Restrictions on types of assets
Lack of clear creditor priority
Enforcement issues Lack adequate legal
framework
Lack registry of security interests in
movables
Dysfunctional Registry/
No Registry
Lack of publicity No transparency
No experience with this type of financing Do not have staff with
necessary skills Lack know how on
movable asset lending
Not their type of business
No competition in the lending markets Revenue from other
sources (TB)
Lack interest
2. Potential
Impact of Secured Transactions
Reforms in Access
to Credit
• BENEFITS OF A SOLID SECURED TRANSACTIONS SYSTEM
• PROMOTES CREDIT DIVERSIFICATION
• INCREASES MARKET COMPETITION
• REDUCES THE COST OF CREDIT
• INCREASES ACCESS TO CREDIT REDUCING THE
RISK OF CREDIT - Underserved MSMEs and women
entrepreneurs - Promotes risk management, prudent lending
-
- Better
interest rates - Move from informal to
formal financing - Cost savings for businesses
- Credit risk diversification:
immovable and movable
- Sector
diversification in the portfolio - Development of
industries (factoring and leasing)
- NBFIs
BENEFITS OF A SOLID SECURED TRANSACTIONS SYSTEM
14
Variable Effect
Access to finance 8 percentage points Access to a loan 7 percentage points
% of working capital financed by banks
10 percentage points
Interest rates 3 percentage points Loan maturity 6 months
15
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.
Collateral Registries for Movable Assets:
Does their Introduction Spur Firms’ Access to Finance?
by Inessa Love, Sole Martínez Pería and Sandeep Singh
3. IFC’s Secured Transactions
Programs:
Business and
Delivery Model
Legal and institutional framework to facilitate the use of movable property as collateral for both business and consumer credit
Bank Accounts Inventory and raw goods
Vehicles Industrial and agricultural
equipment Durable consumer
goods Agricultural products (crops, livestock, fish farm)
Intellectual Property rights Accounts receivable
SECURED TRANSACTIONS SYSTEMS
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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, PakistanCURRENT GLOBAL PORTFOLIO STCR
IMPACT / RESULTS: (1) Value of financing facilitated secured with movable property (US$) and; (2) Number of Firms/MSMEs with
increased access to credit Clients
Governments (Central Banks, Ministry of Finance/Economy/
Justice/Trade)
Beneficiaries
Financial Institutions, NBFIs, Firms (mostly MSMEs), Households and Consumers
Funding Model
IFC funds, Pooled donor funds, client contributions
Value Added
In-house expertise, global /local
presence, developed methodology and M&E standards,
demonstrated impact.
SECURED TRANSACTIONS OVERVIEW
• BUILDING THE CAPACITY OF STAKEHOLDERS
• MONITORING IMPACT &
COMMUNICATION S
• CREATION OF ELECTRONIC REGISTRY
• LEGAL AND REGULATORY FRAMEWORK
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. 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 1. Develop M&E plan
including baseline information
2. Conduct periodic monitoring of impact through registry indicators & surveys 3. Independent evaluations
4. Communications
1 2
4 3
BUSINESS AND DELIVERY MODEL – HOLISTIC APPROACH
PRINCIPLES FOR AN EFFECTIVE SECURED TRANSACTIONS SYSTEM
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Effective Secured Transactions
System
Broad scope
Creation
Publicity / registration Priority
Enforcement
Nature of the data: public
COLLATERAL REGISTRIES: POSSIBLE TYPES Institutional set-up:
stand alone/combined
• 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
• 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
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
COLLATERAL REGISTRY IN MALAWI – LIKELY FEATURES
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)
Risk mitigation for banks’ food/agriculture portfolio
IFC’ S G LOBAL W AREHOUSE F INANCE P ROGRAM (GWFP)
• 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: 50-50 risk sharing
• Facility tenor: one year
extendable up to three years
• Average transaction tenor:
4-6 months
1. Grain/produce stored in third-party warehouse
2. Warehouse receipts issued by warehouse 4. WHR facility
Program partners co- finance with funding or counter-guarantees 3. IFC channels funding
or guarantees for up to 50% on portfolio of warehouse receipts
Bank
Program partners
Agricultural producers
Storage company
26
GWFP HSBC-CMDT MALI
• 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
Funding and risk mitigation for banks’ supply chain finance clientele
IFC’S GLOBAL TRADE SUPPLIER FINANCE (GTSF)
IFC’S GLOBAL TRADE SUPPLIER FINANCE (GTSF)
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.
Global Trade Supplier
Finance
AT-A-GLANCE
$1.6B
cumulative commitments
700+
suppliers financed
7 countries supported:
China, India,
Indonesia, Mexico, Nicaragua, Sri Lanka, Vietnam
4. Impact on Reforming
Jurisdictions of Sub-Saharan
Africa and other
Regions
More than 100 local SMEs have received more than US$ 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
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
OVERALL – 60,000 loans registered for a value of US$14 billion. More than 8,000 SMEs and 30,000 Micro received loans. Collateral by type:
Inventory & receivables (25%), Household goods (20%), vehicles (19%)
31
NEWEST MODERN ELECTRONIC
COLLATERAL REGISTRY IN AFRICA: LIBERIA
32
IMPACT ON CONFLICT AFFECTED COUNTRIES: AFGHANISTAN COLLATERAL REGISTRY
1US$ = 50 AF. 28.79 Billion AF = $575 million
AFGHANISTAN COLLATERAL REGISTRY STATISTICS (As of
January 2014)
Indicators
Commercial Bank Users All
Government Account (FSD/DAB) 13
Micro Finance Institutions (MFIs) 1 Total Number of Registered Notices 1770
Total Number of Search 4065
Total Value of Registered Credit 28.79 Billion AF Chargor Size (Less than 15 Employees) 1178
Chargor Size (Less than 30 Employees) 170 Chargor Size (Less than 50 Employees) 59 Chargor Size (Less than 100
Employees)
29 Chargor Size (More than 100
Employees)
35 Ownership Composition (Male) 1452 Ownership Composition (Female) 4 Ownership Composition (Male & Female) 15
• In Vietnam, legal reform and new centralized online registry (March 2012)
• Over 200,000 loans have been registered to more than 100,000 SMEs
• Total volume of financing through the registry is US$ 2.5 billion
• 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 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
RESULTS OF CREDIT COLLATERAL REGISTRY PROJECTS IN
OTHER REGIONS
5. Synergies Between Credit Reporting and Secured Transactions
Systems
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
SAME OBJECTIVES 1. Increase access to credit
2. Reduce risk of credit
3. Provide credit data to financial and non- bank 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
CR/STCR
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?
