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Session 2 Aaron ADB Abstract

The document discusses secured transactions reform in the Pacific to help small and medium enterprises (SMEs) access financing. It notes that traditional legal frameworks in the Pacific are outdated and make it difficult for SMEs to use property as collateral for loans. New secured transactions frameworks have now been introduced in several Pacific countries with support from the Asian Development Bank. These frameworks allow SMEs to more easily use a wider range of movable property as collateral without complex legal processes. They also lower registration costs and clarify parties' rights and obligations. The frameworks aim to broaden lending to SMEs by making it less risky and costly for lenders to accept movable property as security. The presentation will discuss progress of

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58 views1 page

Session 2 Aaron ADB Abstract

The document discusses secured transactions reform in the Pacific to help small and medium enterprises (SMEs) access financing. It notes that traditional legal frameworks in the Pacific are outdated and make it difficult for SMEs to use property as collateral for loans. New secured transactions frameworks have now been introduced in several Pacific countries with support from the Asian Development Bank. These frameworks allow SMEs to more easily use a wider range of movable property as collateral without complex legal processes. They also lower registration costs and clarify parties' rights and obligations. The frameworks aim to broaden lending to SMEs by making it less risky and costly for lenders to accept movable property as security. The presentation will discuss progress of

Uploaded by

ADB_OREI1
Copyright
© Attribution Non-Commercial (BY-NC)
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Session 2: Financial Infrastructure for SMEs

Abstract Secured Transactions Reform in the Pacific


Aaron Levine Business Law and Registry Expert, Asian Development Bank
Doing business in the Pacific is challenging. The legal framework and the institutions which implement them, are often inherited from long outdated colonial laws, and act as a barrier to starting business, expanding businesses, closing businesses, and in particular, to accessing finance. Credit is essential to performing business transactions, and lenders for hundreds of years, have sought security for their loans in most circumstances. Collateral offered as security exists as either land (which is immovable) or personal property (which is movable). The Pacific legal framework for land has resulted in either land which is mostly too difficult for banks to accept as collateral (such as customary land), or, in respect of land which is able to be mortgaged under conventional systems, is often only owned by a select few large businesses or wealthy individuals. SMEs are generally excluded from these loans. In order for credit to be made available to the wider population, a system needs to be in place which encourages lenders to accept collateral over personal property. The traditional framework for personal property is highly technical and formalistic, requires input from lawyers to draft appropriate documents, and is often uncertain as regards priorities over interests between parties. The result is that lenders ultimately consider it too weak to warrant extensive lending. A more modern approach has been adopted across many jurisdictions, and with ADBs support through the Pacific Private Sector Development Initiative (PSDI), secured transactions frameworks have been rolled out across several Pacific countries. The new frameworks contain key features including: (i) removal of ambiguity about what is being pledged as collateral, (ii) lowering the costs of registering a security interest, (iii) clarifying the rights and obligations of the parties, and (iv) cheaper and more efficient enforcement in the event of default. Under secured transactions frameworks, loans can be secured using collateral such as equipment, inventory, accounts, crops, livestock, documents of title, negotiable instruments and consumer goods without resorting to the complexities of traditional systems. Accompanied by an electronic registry system, which allows cheap and simple filing, there is significant potential for broadening lending to a wide range of SMEs. This presentation will discuss the progress of secured transactions reforms across the Pacific under PSDI, some initial results achieved, and future potential of the reform.

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