Unleashing More than $3 Trillion in Financing through Secured Transactions Reform in China
For many small Chinese firms, accessing finance to run or grow their business is a major challenge because they do not have acceptable collateral, such as real estate, for loans.
In 2004, under the China Secured Transactions Project, IFC worked with the government and the People’s Bank of China (PBOC) to develop and roll-out a secured transactions system to enable and promote the use of movable assets as collateral. The project helped the Chinese government draft and pass regulation (the “Property Law”) which paved the way for banks to increase their lending to Small and Medium Enterprises (SMEs).
With IFC’s support, the PBOC created a single, centralized accounts receivables registry and carried out a nationwide campaign to raise awareness about movables financing.
The overall aim of the project was to increase the amount of financing that local banks made to SMEs.
A recent evaluation, that was conducted by an independent consultant and managed by the Development Impact Department, in partnership with the Access to Finance Business Line and the EAP region, shows that as of June 2011, businesses had received more than $3 trillion in credit through more than 385,000 loans. Many of the beneficiaries were small businesses.
Chinese companies say this has made all the difference.
“Previously, our company had to focus its efforts on business development because we did not have the working capital to accept large contracts," explained the financial manager of Tianyue, a Chengdu-based producer and installer of window frames for buildings. "Now that we can use movables, such as accounts receivable for collateral, we have been able to take on additional business and invest more resources and time in product development."
Some of the development results showed that:
Banks in China significantly increased the size of their SME lending portfolio. About 20 percent of the increased financing went to businesses owned by women.
The value of commercial loans secured exclusively by movable assets grew by 82 percent per year in 2008-2010, compared to 19 percent in 2006 and 2008.