In emerging markets, using movable assets as collateral for low-cost loans is critical to increasing access to finance, especially for farmers and smaller businesses with limited assets. Yet in Uzbekistan, the share of financing secured by movable assets is around seven percent.
Now, with help from MENA colleagues, IFC's ECA Financial Infrastructure Program is looking to significantly improve Uzbekistan's situation with a registry for potential borrowers' collateral.
"The absence of a collateral registry is limiting the use of movable assets as banks lack the tools to identify and monitor collateral and get information about pledgers,” said Adkham Yuldashev, Head of Department at Hamkorbank. “This in turn restricts loans for individuals and businesses hoping to use land or building as collateral for loan.”
The President of Uzbekistan recently signed a new collateral registry law developed with IFC support. When it comes into force next July, the law will make it much easier for farmers and entrepreneurs who do not own buildings or land to secure much-needed loans. It is expected to increase the share of financing secured by movable assets to at least 40 percent. The resulting loans will help many small businesses grow, sparking job creation and broader economic expansion.
The new law specifies that the collateral registry is intended to publicize lenders’ security interests in debtor’s movable assets, which are given to creditors as collateral or were limited in use in order to secure fulfillment of the debtors’ obligations. This informs banks, microfinance organizations, and other lenders of borrowers’ true credit worthiness, encouraging more lending and reducing risk.
“During the process of lending, creditors, borrowers, depositors, and pledgers often face problems due to the lack of a collateral registry, which allows lenders to quickly define the legal status of collateral,” said Akhadbek Khaydarov, Deputy Chairman of the Central Bank of Uzbekistan. “The new law is critical to further developing a healthy financial system and increasing competition between financial institutions in the country.”
The registry will be a modern notice-based system, operating via Internet. Every creditor can submit a notice on his rights to a debtor’s assets, as long as the latter provides written consent.
The registry website will be public and maintained by the Central Bank of Uzbekistan. And it may just improve the lives of thousands of farmers and small business owners across Uzbekistan.