Being able to use so-called movable assets – things owned by a business other than real estate – as collateral is important for small entrepreneurs to obtain loans and for developing a healthy credit market.
In Vietnam, IFC helped the government develop
and launch an online registration system for
secured transactions in 2012. The system tracks
which movable collateral, such as crops and
equipment, has been pledged by borrowers to
secure their loans. As a result, banks can better
assess lending risks, allowing Vietnamese farmers
to obtain bank loans more easily.
In emerging markets, many small and medium enterprises simply do not own land or buildings that can be offered as security for a loan. If they can use movable assets, such as inventory, equipment, crops, livestock or future income, as collateral, a whole new world of financing and growth opportunities opens up.
That’s what happened in China, where the share of financing secured by movable assets was a mere 4 percent in 2004. In developed markets, typically 80 to 90 percent of lending to small and medium enterprises involves movable assets.
IFC supported the Chinese government in drafting and passing a groundbreaking law in 2007 that paved the way for banks to accept movable assets and increase their lending to small and medium enterprises. To further strengthen movable asset financing, we also advised the People’s Bank of China to set up and run a centralized online system for creditors to register borrowers’ accounts receivables and other forms of movable asset security, making it easier for banks to grant loans.
The effect has been phenomenal: The value of commercial loans involving movable assets grew 24 percent in the past four years. As of June 2011, more than $3 trillion in loans have been granted with movable asset security and many of the beneficiaries are small businesses.
“Previously, our company had to spend energy and resources on getting small orders because we did not have the working capital to accept large contracts,” says Xiong Yun, financial manager of Tianyue, a Chengdubased producer and installer of window frames for buildings. “Now that we can use movable assets, such as accounts receivables, for collateral, we have been able to take on additional, larger orders and focus more resources and time on product development.”
Countries across the Mekong region are moving in the same direction, improving the potential for businesses in fast-growing Lao PDR and Vietnam to expand and create jobs.
In Vietnam, IFC helped the government launch an online registry for movable assets to encourage lenders and borrowers to increase the use of the financing method.
“Loan access is among the top five most troublesome procedures for enterprises. The new online system will bring great benefits for the companies to cut costs and time,” says Dau Anh Tuan, deputy director of the Legal Department at the Vietnam Chamber of Commerce and Industry.