Friday, July 01, 2005
Sowing the Seeds of Reform: Secured Transactions, Financial Sector Development and Agricultural Finance in Bulgaria
By: The Enterprise Research Institute
For: The World Bank, 2001
This paper analyzes from a secured transactions perspective, the financial sector of Bulgaria as it relates to the provision of agricultural finance. It concludes that the secured transactions framework in Bulgaria has been greatly improved and, with the further changes that are envisaged, should provide an adequate foundation for secured lending. While in the longer term a well-functioning secured transactions framework is an essential part of the foundation of financial sector development and evolution, the paper suggests that the recent reforms of secured transactions will do little in the shorter term to improve the flow of finance to agriculture because of other institutional and sectoral deficiencies. Chief among these is the embryonic state of the land market, which so far has kept potentially efficient farmers from purchasing land from low productivity producers. The problems of agricultural finance are compounded by low world prices for agricultural products and the effects of the forthcoming privatization on bank lending behavior.
Besides examining the secured transactions framework, the paper discusses more generally issues involved in the establishment of a financial sector that effectively channels funds from savers to productive investors. It commences with a brief review of recent economic developments in Bulgaria focusing on what has happened to agriculture over the past few years. It then describes the role of the financial sector in promoting agriculture as a whole and looks more closely at rural finance. It discusses how institutional failure results in financial market underdevelopment and points out how the secured transactions framework is an important foundation for the growth of bank lending, particularly to smaller agricultural producers and to small and medium sized enterprises in general. It then describes some of the essential elements of a viable system of secured transactions, emphasizing that there are several components that must function efficiently in order for the system to provide a good basis for secured lending, namely the law, the registries and the legal system. The paper reviews the current state of secured transactions reform in Bulgaria with regard to each of these components. It identifies problems that remain and suggests measures to deal with them. It concludes with a brief discussion of other important issues for the long term development of the financial sector in Bulgaria.
For: The World Bank, 2001
This paper analyzes from a secured transactions perspective, the financial sector of Bulgaria as it relates to the provision of agricultural finance. It concludes that the secured transactions framework in Bulgaria has been greatly improved and, with the further changes that are envisaged, should provide an adequate foundation for secured lending. While in the longer term a well-functioning secured transactions framework is an essential part of the foundation of financial sector development and evolution, the paper suggests that the recent reforms of secured transactions will do little in the shorter term to improve the flow of finance to agriculture because of other institutional and sectoral deficiencies. Chief among these is the embryonic state of the land market, which so far has kept potentially efficient farmers from purchasing land from low productivity producers. The problems of agricultural finance are compounded by low world prices for agricultural products and the effects of the forthcoming privatization on bank lending behavior.
Besides examining the secured transactions framework, the paper discusses more generally issues involved in the establishment of a financial sector that effectively channels funds from savers to productive investors. It commences with a brief review of recent economic developments in Bulgaria focusing on what has happened to agriculture over the past few years. It then describes the role of the financial sector in promoting agriculture as a whole and looks more closely at rural finance. It discusses how institutional failure results in financial market underdevelopment and points out how the secured transactions framework is an important foundation for the growth of bank lending, particularly to smaller agricultural producers and to small and medium sized enterprises in general. It then describes some of the essential elements of a viable system of secured transactions, emphasizing that there are several components that must function efficiently in order for the system to provide a good basis for secured lending, namely the law, the registries and the legal system. The paper reviews the current state of secured transactions reform in Bulgaria with regard to each of these components. It identifies problems that remain and suggests measures to deal with them. It concludes with a brief discussion of other important issues for the long term development of the financial sector in Bulgaria.