Bringing More Dead Capital to Life
It is well known that banks are more likely to lend—and at better rates—when a borrower can offer collateral to secure the loan. Lenders may provide unsecured credit to some borrowers, but the amounts are less and the costs are higher than for secured loans. This can be particularly true outside the urban centers, where seasonal production cycles and cyclical cash flow require flexibility in structuring credit. When borrowers can offer valuable collateral, lenders provide more and better rural and agricultural credit. Worldwide, the best known and most utilized form of collateral is real property—land and the buildings on it. Unfortunately, many people in developing countries do not own real property, or not in a manner that banks recognize as acceptable collateral. More options are needed to expand access to secured lending in the agricultural sector. This note explores the rationale for moveable property registries and how these systems work to broaden access to credit.