Collateral Registries: A Smart Way to Expand Access to Finance

Collateral registries benefit mainly women and younger entrepreneurs who do not have credit histories. © John McNally/IFC

Small and medium-sized companies are the backbone of Latin America’s economy. They represent more than 90 percent of all enterprises, generating more than two thirds of all jobs and a quarter of the region’s gross domestic product. They are essential to economic growth.

Yet their success is often blocked by one key obstacle: lack of credit. Only 12 percent of total credit in the region goes to these firms. In recent surveys, nearly a third of companies in the region identified lack of credit as a major constraint.

Take the case of Sonia Arias. When she opened her small textile business in Medellin, Colombia, nine years ago, she took an informal loan that left her with sky-high interest rates and little leftover cash to reinvest.

The reason for the steep interest rates: Arias did not have fixed assets—such as land or a house—that banks demand as collateral. “When I was repaying these loans, it felt like we were being hit with a stick,” she recalls. All over Latin America and the Caribbean, women-owned small businesses face a similar problem.

That is changing, thanks to IFC’s efforts. Now, instead of insisting on land and buildings, Latin American and Caribbean banks are starting to accept movable assets—such as machinery, equipment, livestock, crops or inventories and receivables—as collateral.

IFC worked with governments and banks in the region to introduce the concept of collateral registries and to implement secured-transaction laws that enable banks to lend to small entrepreneurs who only have movable assets as security. This is having a big impact on thousands of small entrepreneurs like Arias, who could not previously get loans because they didn’t own real estate.


Gains for Small Entrepreneurs

Collateral registries are breaking down barriers to lending, especially for women and younger entrepreneurs who often do not have credit histories or banking relationships. Colombia’s collateral registry was launched in March 2014. Since then, it has received over 1.3 million registrations.

Also, about one-fourth of these registrations represent credit to micro, small, and medium enterprises—and there is clear potential to increase the numbers. More than 100 financial institutions, including some of the largest banks in the country, are already participating in the registry as lenders. The associated legislative reforms were made possible through a three-year partnership between the Colombian government, the Association of Chambers of Commerce, and IFC.

IFC has also worked with partners in more than 30 countries in Latin America and the Caribbean and other regions to establish the legal and institutional frameworks that enable borrowers to use movable assets to guarantee loans. Because of IFC’s efforts, impressive gains are being made.

Mexico has implemented an electronic movable-collateral registry—with 97 percent of the registrations supporting loans to small and medium enterprises. In May 2015, a new secured-transactions system came into effect in Costa Rica. In the year that followed, there were about 9,500 new registrations. More than 4,500 small and medium enterprises received loans secured by movable assets.

IFC is now working on similar initiatives in Chile, Costa Rica, the Dominican Republic, Paraguay, Peru, and St. Lucia—potentially creating new opportunities for tens of thousands of small entrepreneurs like Sonia Arias.

To learn more about IFC’s work with financial institutions, visit:

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Published in October 2016


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