4.4.2. Build Collateral Registries

DESCRIPTION

A collateral registry is a record of legal claims to personal property used as collateral for a loan. Transparent collateral registries allow lenders to check if collateral being offered as security for a loan has already been pledged to another lender. Modern collateral registries are often computerized, improving the timeliness, accuracy, and accessibility of collateral information to avoid disputes over rights to property.

Some USAID presence countries have recently implemented registries that allow banks to accept movable property as collateral, rather than immovable property land and buildings alone. Movable collateral registries open up the range of borrowers able to provide security and access lending to include those who do not own land or buildings. Movable collateral registries tend to be positive for gender issues because women are disproportionately likely to have movable assets but no immovable assets to pledge.

CONSTRAINTS ADDRESSED

1. Ability of borrowers to register assets as collateral
2. Ability of finance providers to ensure that assets are not already pledged to other parties
3. Ability to enforce financial transactions
4. In the case of movable collateral registries, ability for women or smaller borrowers to access finance

ADVANTAGES

For finance providers, collateral registries lower the risk of default and fraud by increasing transparency and formalizing the lender’s claims. Online registries also tend to have lower costs and speedier processes than older paper-based procedures.  In the case of movable property lending, for finance seekers, collateral registries increase flexibility and access to finance for SMEs and businesses with movable assets. For finance  providers, introduction of moveable property lending opens up new markets—borrowers unable or unwilling to pledge immovable property.

DISADVANTAGES

In the case of movable property lending, even with collateral registries in place, finance providers and seekers may require additional technical assistance or incentive to engage in movable property lending, which while commonplace in developed countries is a relatively new practice in many developing countries.

MUST HAVE’S, CRITICAL POINTS, OR QUESTIONS TO CONSIDER

The introduction of a collateral registry should be enabled by suitable laws and regulations, and accompanied by stakeholder sensitization, technical assistance to finance providers and seekers on the use of movable property lending, and the development of supporting industries such as insurance, property/business valuation, and resale markets. 

VIGNETTE: MOVABLE COLLATERAL REGISTRY IN JORDAN

SITUATION

Jordan is teeming with small- and medium-sized enterprises (SMEs), many women-owned. SMEs are an important driver of economic growth and often the largest contributor to job creation. SMEs need access to financial services—like affordable credit—to invest in their businesses and take risks that may be easier for larger companies to hedge against. At the same time, citing those risks, banks traditionally have been reluctant to lend to SMEs, which often lack the kind of assets that can act as collateral for credit applications. The Jordan Competitiveness Program's work pushing passage of Jordan's Secured Lending Law as well as its design and production of the collateral registry are poised to unlock this potential.

STRUCTURE

Working with the Jordanian Ministry of Industry, Trade, and Supply (MoITS), the project implemented an online Movable Collateral Registry and trained ministry staff. Combined with a recent Secured Lending law, the online registry allows banks to lend to SMEs using their movable assets (equipment, inventory, receivables, etc.) as collateral.

IMPACT

As a result, banks' lending to SMEs is expected to increase by seven percent annually, representing a more than $1 billion per year increase in available financing and translating into approximately 30,000 jobs over four years.