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Submitted by William Armstrong on

Excellent article, it's good to see that the considerable efforts of the World Bank, IFC, and EBRD to promote security interests on movable property are paying off.

Two comments of a technical/semantic nature.
Firstly, conventional economic literature's focus on asymmetric information as the reason that banks require collateral is just plain wrong. Banks have better information than the borrowers. They have the experience of working with many clients in the same industry and understand these risks better than the borrower does. The banks require collateral not to counter some perceived informational disadvantage, but because the banking business is not a profitable one unless banks have security interests to fall back on. The ability to seize and sell collateral reduces the losses from lending and makes it profitable enough to justify running a lending business. To convince yourself that asymmetric information is unimportant in this equation, imagine a situation where both borrowers and lenders shared exactly the same information. Some loans would still go bad so lenders would still require collateral on most loans.

The second point is with regard to the use of the term "moveable asset registries". Moveable assets are not registered in these institutions, contingent claims on moveable assets are. There is a confusion on this point because in traditional mortgage lending, both the asset and the claim is registered. Not so in lending against moveables. This confusion leads to much wasted efforts in trying to design institutions to register moveable assets, only to eventually come to the realization that such a registry cannot be economically operated.