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Secured Transactions, Collateral Registries and Movable Asset-Based Financing 1 Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Secured Transactions, Collateral Registries and Movable Asset-Based Financing Knowledge Guide Public Disclosure Authorized November, 2019 2 Secured Transactions, Collateral Registries and Movable Asset-Based Financing. November, 2019 ACKNOWLEDGMENTS The publication of this Knowledge Guide was made possible due to the generous support of the Swiss State Secretariat for Economic Affairs (SECO). The preparation of the Knowledge Guide was led by the Secured Transactions and Collateral Registries Team (Murat Sultanov, John M. Wilson, Elaine MacEach- ern, Luz Maria Salamina and Pratibha Chhabra) within the World Bank, under the guidance of Mahesh Uttamchandani. The primary technical content of the knowledge guide was developed by Doctor Marek Dubovec (Kozolchyk National Law Center), with support from Professor Giuliano G. Castellano (University of Hong Kong and the Asian Institute of International Financial Law). Special thanks to Chikezie Anachu and Simon Stanley of Natlaw for their contributions to this report. The authors are indebted to the following peer reviewers for their excellent sug- gestions and thoughtful contributions to improve the content of the Knowledge Guide: Jae Sung Lee (United Nations Commission on International Trade Law) Jelena Madir, Catherine Bridge, and Ammar Al-Saleh (European Bank for Recon- struction and Development) Maria Magdalena (Maika) Chiquier and Lina Sun Kee (World Bank Group) 3 Table of contents Introduction: Purpose and Use of Knowledge Guide ..............................................................................01 Chapter 1: Economic Rationale and Aspects of Secured Transactions .....................................02 A. Access to Finance: Crucial, but Major Constraint for Private Sector Growth .............................................02 B. Inadequate Collateral as a Top Impediment in Access to Finance ...................................................................03 C. Reforms of Secured Transactions Laws and Registries to Increase Access to Credit ..............................04 D. Credit Infrastructure Mitigates Various Risks ........................................................................................................08 E. Overview of Credit Products Available under Modern Secured Transactions Systems ..........................10 F. Gender Finance: The Positive Effect of Reforms on Women ............................................................................22 Chapter 2: Recent Developments and Emerging Trends ...................................................................25 A. Effect of Modern Technologies on Secured Transactions..................................................................................25 B. Prudential Regulation and Secured Transactions: Building a Sound and Inclusive Credit Ecosystem ..................................................................................................................................................................30 C. Loan Guarantee Programs ...........................................................................................................................................40 Chapter 3: Lessons from Implementing Reforms - Building a Best Practice Legal Framework ............................................................................................................................................................42 A. General Implementation Challenges ......................................................................................................................42 B. Specific Issues in the Development of the Law ...................................................................................................45 C. Recognized International Standards ......................................................................................................................49 D. Pertinent Legislation ....................................................................................................................................................52 E. Building a New Secured Transactions Legal Regime ........................................................................................58 Chapter 4: Design, Placement and Implementation of Registry ..............................................272 A. General Implementation Considerations .............................................................................................................72 B. Registry Liability .............................................................................................................................................................83 C. Registry Best Practices ................................................................................................................................................84 D. Operating Budget Estimate ......................................................................................................................................92 E. Procurement ...................................................................................................................................................................94 F. Testing and Acceptance ..............................................................................................................................................95 G. Start-up Management ...............................................................................................................................................96 Chapter 5: Public Awareness Building and Training ...............................................................................97 A. Capacity of Media to Support Public Awareness .............................................................................................97 B. Public Awareness .........................................................................................................................................................98 C. Training ............................................................................................................................................................................99 4 Secured Transactions, Collateral Registries and Movable Asset-Based Financing. November, 2019 © 2019 International Bank for Reconstruction and Development / The World Bank 1818 H Street NW - Washington DC 20433 Telephone: 202-473-1000 - Internet: www.worldbank.org This work is a product of the staff of The World Bank with exter- nal contributions. The findings, interpretations, and conclusions expressed in this work do not necessarily reflect the views of The World Bank, its Board of Executive Directors, or the governments they represent. The World Bank does not guarantee the accuracy of the data in- cluded in this work. The boundaries, colors, denominations, and other information shown on any map in this work do not imply any judgment on the part of The World Bank concerning the legal status of any territory or the endorsement or acceptance of such boundaries. Rights and Permissions The material in this work is subject to copyright. Because The World Bank encourages dissemination of its knowledge, this work may be reproduced, in whole or in part, for noncommercial purposes as long as full attribution to this work is given. Any queries on rights and licenses, including subsidiary rights, should be addressed to the Office of the Publisher, The World Bank, 1818 H Street NW, Washington, DC 20433, USA; fax: 202- 522-2422; e-mail: [email protected]. 1 INTRODUCTION: PURPOSE AND USE OF KNOWLEDGE GUIDE The main objective of this Knowledge Guide is to provide some aspects of its intersection with land law, such as the guidance to the World Bank Group (WBG) staff, donor insti- application to fixtures, and the potential extension of mov- tutions, government officials and other practitioners on the able property secured transactions regimes to immovable objectives and implementation of secured transactions re- collateral. It also does not examine some specialized areas forms, as well as the factors that affect the implementation. of financing, such as various credit products secured with highly mobile equipment or intermediated securities. These The Knowledge Guide considers the experiences learned in are typically governed by specialized regimes, such as those various secured transactions reform projects implemented adopted by the International Institute for the Unification of not only by the WBG, but also by other organizations, espe- Private Law (UNIDROIT). The Guide focuses primarily on cially the European Bank for Reconstruction and Develop- transactions involving micro, small, and medium-sized en- ment (EBRD). It also summarizes and examines a number terprises (MSMEs), leaving aside a number of issues that of recent developments. First, on the legislative side, it ref- may arise in the context of consumer transactions. erences the provisions of the United Nations Commission on International Trade Law (UNCITRAL) instruments, es- Chapter 1 contains a discussion of the economic rationale pecially the 2016 Model Law. Second, significant space has for modern secured transactions systems, providing a back- been dedicated to regulatory aspects, particularly those re- ground on the utility of the reforms and their roles within lating to prudential regulation and their intersection with se- the broader credit infrastructure, as well as a detailed section curity rights in movable assets. Finally, a detailed description
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