In Vientiane
Litsamy Latsavong
Phone: (856-21) 450 017
E-mail: llatsavong@ifc.org
Vientiane, 29 July, 2008 – The Ministry of Justice and IFC, a member of the World Bank Group, have signed a Memorandum of Understanding and have agreed today that IFC will help the Government of Lao PDR develop an appropriate regulatory framework and establish a secured transactions registry to facilitate broad use of movable assets as collateral in Lao PDR. These developments are expected to significantly enhance access to finance for Micro, Small and Medium Enterprises (MSMEs).
To enable greater borrowing against moveable assets (such as equipment or inventories) IFC MPDF will work with the Ministry of Justice to create a legal and institutional framework, and a registry that will allow lenders to register their interest in a moveable asset when its accepted as collateral. The major components will include:
- Identifying, addressing and improving shortcomings in the current legal framework and undertaking advocacy to ensure adoption of best international practice.
- Helping the Government of Lao PDR establish the secured transactions registry.
- Raising awareness with end-users of the registry (banks and other lenders such as insurance and leasing companies) so that they understand the new reforms and how the registry will work, and what new financing products they can introduce once borrowing against moveable assets is possible.
The Ministry of Justice expects that “ the implementing decree for the Secured Transactions Law will enable businesses to use both their movable and immovable assets as collateral for bank credit. This decree, together with the plan to establish a new secured transactions registrations system, is expected to facilitate the country’s lending market.”
An IFC diagnostic of the commercial finance sector showed that less than 20% of households and private enterprises in Lao have access to finance. While lending is based almost entirely on collateral, banks generally do not accept motor vehicles, machinery, or equipment because it is unclear whether others have already granted loans against that asset. Instead, banks predominantly require cash or immovable assets (property or ownership rights to land) as security for a loan. Start-up companies, which often lack collateral of any kind, find it almost impossible to secure financing. As a result, a large segment of private enterprise remains un-served or underserved.
Mr. Allan Marlin, the Managing Director, ANZ Vientiane Commercial Banks Ltd said, “We all understand how problematic it is for lenders to realize on security held when a debtor defaults and a loan becomes bad. This needs to be rectified in the implementing decree so that lenders are given rights to obtain loan repayments through the sale of security property. A national registration system, preferably computerized, is also needed which would allow lenders to record the security they hold and which others can easily access to check whether security is held over a particular item. This will ensure that the moveable item is not used as security for a loan more than once. This registration process needs to be simple, fast, and by notice only.”
Research shows that access to finance is crucial for economic growth, and particularly benefits the poor. Removing barriers to a wide range of financial services can both unleash private enterprise productivity and help to bring the informal economy into the formal. “If banks are able to accept movable assets as collateral, then micro, small and medium enterprises will find it much easier to access the financing to meet their business needs. Smaller companies will be able to expand and realize their potential in creating more jobs, paying more taxes, and contributing to national prosperity” said Margarete Biallas, Access to Finance Program Manager of the IFC’s advisory services for the Mekong region.
About IFC
The International Finance Corporation (IFC), a member of the World Bank Group, fosters sustainable economic growth in developing countries by financing private sector investment, mobilizing private capital in local and international financial markets, and providing advisory and risk mitigation services to businesses and governments. IFC’s vision is that people should have the opportunity to escape poverty and improve their lives. In the Mekong region, IFC manages MPDF, a multi-donor initiative delivering advisory services in Lao PDR, Vietnam, and Cambodia. IFC MPDF's donors are Australia, Canada, Finland, IFC, Ireland, Japan, New Zealand, the Netherlands, Norway, Sweden, and Switzerland. For more information, please visit www.ifc.org/mpdf
