Reforming collateral laws

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As the protesters among you certainly know, the IMF-World Bank Group annual meetings are underway in Singapore. Tomorrow, look for the release of the World Development Report: Development and the Next Generation. In line with its youth theme is a debate concluded yesterday on the BBC, Are African youths enterprising? One commenter from Kampala said:

High interest rates on loans from microfinance institutions and the demand for collateral security in Uganda is 'killing' the youths endeavours for enterprises of their dreams.

Economists at the Bank are doing more and work on collateral laws, such as this policy note and book on reforming collateral laws to expand access to finance. The main message?

Firms have assets that could easily be used to secure loans—movable assets such as the goods they produce or process, the machinery they use in manufacturing, accounts receivable from clients, intellectual property rights, and warehouse receipts. The problem lies in the mismatch between the assets firms own and the assets banks accept as collateral.

As I posted last week, this year's Doing Business report focuses on reforms designed to help entrepreneurs. The report notes that 9 countries reformed collateral laws in the past year - like France, Peru, Denmark, Kyrgyz Republic and Serbia. Slovakia is held out as an example to follow:

As part of its reform in 2002, Slovakia permitted borrowers to use all movable assets as collateral—present and future, tangible and intangible. Since then more than 70% of new business credit has been secured by movables and receivables.

Last stop on this meandering train of thought - we've just started an online discussion on the Doing Business report. Do you have something to say?

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