John Armour, Antonia Menezes, Mahesh Uttamchandani and Kristin van Zwieten
The chapter reviews evidence from a new generation of empirical studies, largely focusing on within-country effects, that seek to measure the impact of reforms to creditor rights on access to credit, both on the recovery of debt and rescue of businesses (ex post), but also on the level of credit made available to business and the terms (ex ante). The studies show that effective reform of creditor rights is associated with a lower cost of credit, increased access to credit, improved creditor recovery, and strengthened job preservation. A country’s creditor rights regime plays an important role in mitigating investor risk, which in turn contributes to the improved access and cost of credit and increased financial stability in a country.
Spyridon V. Bazinas
The chapter presents the most salient features of the UNCITRAL Legislative Guide on Secured Transactions and explores the reasons that explain why the Guide is being used as a reference tool for the modernization and harmonization of secured transactions laws. The reasons lie with the fact that it is a text prepared by an authoritative international legislative organ like UNCITRAL and combines flexibility with certainty, transparency and predictability, and coordinates with registration, insolvency, IP and private international law. Equally important is the fact that the Guide, together with texts of other organizations, presents states with a comprehensive, efficient and internally consistent secured transactions regime.
The chapter takes as a starting point that, whereas there is a growing body of evidence on the economic impact of secured transactions reforms, there are different schools of thoughts as to what legal elements are actually essential for economic benefits to be reaped. This suggests that secured transactions law is an area where a good deal of complexity and inefficiency exists worldwide. The chapter focuses on one aspect of the secured transactions legal regime over which there is perhaps the greatest divergence of views and at times a good deal of misunderstanding: the scope of the regime. The chapter begins by listing four different objectives that policy-makers may seek to achieve by adopting a particular approach to the scope of the legal framework, and then reviews these objectives in a number of jurisdictions which have conducted reform or are planning to do so. The chapter shows that there are subtle differences in the way the four objectives are implemented. Not only have very few countries attempted to fulfil all four objectives at once, but their approach has been different. Policy objectives are defined, and then revisited, subject to internal and external influences.
Michael J. T. McMillen
The chapter looks at how to implement Shari’ah-compliant collateral security regimes for securing obligations. The chapter goes through the fundamentals of Shari’ah law and examines how to manage them for secured lending. It then goes on to cover specific issues, such as second and subsequent liens, secured debt, proceeds, types of collateral and remedies. It shows that seeking compatibility between secured lending and Islamic finance is challenging but far from impossible.
In general, it is harder for businesswomen to access finance, and in particular secured finance, than it is for businessmen. The problem is especially acute in developing countries, where women entrepreneurs can have a key role in lifting themselves and their families out of poverty. This chapter: provides an overview of what we know about women’s access to secured finance internationally; considers how the formal law can help or hinder women’s access to secured finance, focusing on family law, land titling law, and secured transactions law; looks at how contrasting family law regimes impact on women’s ability to access credit on the ground in Morocco and the Kyrgyz Republic – countries with very different economies, cultural contexts and legal systems; and ends with some suggestions for policy- and law-makers aiming to improve access to secured finance for women.
During the past 25 years there have been many initiatives to encourage banks in emerging markets to extend finance to the agricultural sector, but few have achieved a satisfactory outcome. The chapter argues that isolated actions do not work and recommends a multi-tiered, targeted approach which would encompass working at all levels of the ecosystem – central bank; commodity exchanges, warehouses; using also a diversity of tools (such as financing leasing, security over growing crops, collateral management service); providing a government-subsidized multi-peril crop insurance programme. If bank liquidity and access to refinancing, price risk management, legal security, collateral management and minimal transaction cost are not addressed convincingly and if any element is missing or dealt with by half-measures, experience shows that the effort will either be fruitless or unsustainable over time.
Christian de Lima Ramos
The Cédula de Produto Rural (CPR) has revolutionized the way primary agriculture is financed in Brazil since its launch in the mid-1970s. Technically strong and practically simple, the CPR’s potential influence is considerable and goes well beyond Brazil. The chapter presents the instrument, its uses, its evolution through the years, as well as how it could be improved and exported to other markets.
The inability of many firms (usually of small and medium size) to secure sufficient working capital to finance regular business cycles often forces them to use their long-term assets (through divestment or collateralization) to bridge the financing gap created between outgoing payments and collections of accounts receivable, with potentially negative effects on business prospects and development since long-term assets are depleted to finance short-term liabilities. Factoring, as a financial service based on the sale of accounts receivable (short-term assets) is a very useful financing tool for efficient (and when done without recourse) off balance sheet access to working capital. The industry has been known for many years in developed economies and has been gaining momentum recently in developing and transition countries. Part of the efforts should be concentrated on the creation of a solid legislative basis for assigning accounts receivable and the introduction of a sound regulatory regime. This chapter presents the legal and regulatory aspects of factoring transactions and analyses different approaches from the perspective of supporting the development of factoring services.
The role of security in project finance and public private partnership (PPP) financing has often been characterized in terms that are at least surprising for a secured transactions lawyer – it is often said that security in project finance is “a shield, not a sword”. After defining project finance and PPP financing and the key feature of the security package attached to them, the chapter explores whether the qualification of “shield” still holds true, or whether it requires qualification in certain respects, and then if this has wider implications for the understanding of secured transactions at large. The chapter also touches upon how project finance and PPP structures have adapted after the 2008 financial crisis.