Business

The Billion-Dollar Question: How to fill Belize’s SME Credit Gap? Part 5

Last week’s “The Business Perspective” column took a short pause from the access-to-credit discourse, and focused on yet another set of factors affecting the business community and growth: the competition that local businesses have with cross-border purchases. As was stated last week, the idea is not to encourage any government policy that seeks to block Belizean shoppers from travelling to Chetumal, Mexico. The point, however, is that local business and the good and services offered need to become so attractive to our Belizean consumers that they become more and more inclined to shop at home as opposed to abroad.

And as has been the running theme in this series, it’s difficult for businesses to achieve that level of quality without key factors such as adequate access to financing. To this end, as was discussed in the fourth part of this series, it is worth looking closely at all available options and alternative financing approaches that exist. Among these various methods, we find asset-based lending and the need for secure transaction registries (STRs). The World Bank had explained the need for STRs as follows:

“Modern Secured Transaction Laws and Collateral Registries have a dramatic impact on economic Collateral provides the basis for free-flowing credit markets, reducing the potential losses lenders face from non-payment,” they added. “While land and buildings are widely accepted as collateral for loans, the use of movable collateral (such as inventory, accounts receivables, crops and equipment) is restricted because many countries do not have functioning laws and registries to govern secured transactions. Reforming the framework for movable collateral lending allows businesses—particularly SMEs—to leverage their assets into capital for investment and growth. Modern Secured Transaction Registries increase the availability of credit and reduce the cost of credit.”
To achieve this, several changes to the financial legal infrastructure need to be amended. One such change is for allowance to be made for “After-Acquired Property”. This feature is especially useful in the context of movable assets, as it is very possible that the debtor may sell and replace the original asset used as collateral. After-Acquired Property laws would allow for creditors to be able to extend their security interest even to the newly acquired asset, even though it was not the original item used as collateral.

Naturally, such changes may lead to another set of questions. For example, what happens if a third party purchases an asset that is registered as a security interest? This would need to be addressed under the principle of “Buyers in Ordinary Course” of business in which “buyers in the ordinary course of business must be free of any security interest created by its sellers.”
Quoting from the International Finance Corporation (IFC 2015) on this matter, they write: “This rule must operate even if the parties perfected the security interest prior to its sale and even if the buyer knows of the existence of the security interest. This exception protects consumers who purchase goods from a retailer/secured debtor’s inventory from the secured party’s right to repossess the goods. Although Belize has important consumer protection remedies, these do not function in a manner similar to the protection of ordinary course buyers.”

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