Secured Transactions Reform and Access to Credit
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Secured Transactions Reform and Access to Credit

  • Elgar Financial Law series

Edited by Frederique Dahan and John Simpson

The chapters presented here provide, for the first time, a comprehensive and cutting-edge view of the subject – from both a legal and economic perspective. They start at the macro level of financial systems, moving towards the behaviours of lenders (commercial banks and micro-lenders), policy options for government and the mechanisms of collateral law reform.
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Chapter 6: The State of Nature and Lending in an Unreformed Environment: Experience from Early Transition Countries

Thomas Engelhardt and Benjamin Regitz

Extract

6. The state of nature and lending in an unreformed environment: experience from early transition countries Thomas Engelhardt and Benjamin Regitz If a covenant be made, wherein neither of the parties perform presently, but trust one another; in the condition of mere nature, which is a condition of war of every man against every man, upon any reasonable suspicion, it is void: but if there be a common power set over them both, with right and force sufficient to compel performance, it is not void. For he that performeth first, has no assurance the other will perform after; because the bonds of words are too weak to bridle men’s ambition, avarice, anger, and other passions, without fear of some coercive power; which in the condition of mere nature, where all men are equal, and judges of the justness of their own fears, cannot possibly be supposed. And therefore he which performeth first, does but betray himself to his enemy; contrary to the right, he can never abandon, of defending his life, and means of living. Thomas Hobbes, Leviathan1 6.1 INTRODUCTION This chapter analyses the conditions for lending in an ‘unreformed’ environment. If, as the evidence provided in other parts of this book suggests, the legal regime matters for the efficiency of financial sectors, what are the choices for someone doing business in a less-than-perfect regime? Our contribution is based on practical experience from operating the Micro Finance Bank of Azerbaijan (MFBA).2 After laying out a theoretical 1...

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