Numerous studies point to finance as an essential factor in promoting growth in developing economies by confirming strong empirical links between financial market development and economic growth. One of the key factors in improving access to finance is the collateral framework, in particular the ability to pledge movable property as security for loans. While this is taken for granted in Canada, New Zealand and the United States, in most developing countries, lenders require real estate as collateral for business loans, which puts financing outside the reach of most borrowers, particularly poorer ones.
One of the core competencies of ERI is reforming secured lending frameworks in countries where the ability to pledge movable assets as security for loans is either weak or non-existent. The methodology utilized by the Enterprise Research Institute (ERI) combines legal review with the microeconomic analysis of the laws and regulations governing lending to identify borrowers and lenders’ incentives and constraints. This analysis begins with an overview of the current secured transactions framework, which will provide the basis for a preliminary assessment of how problems in each element of the secured transactions law constrain financial sector and private sector development. ERI has undertaken this analysis in numerous countries, including Bulgaria, Fiji, Jamaica, Mongolia, Palau, Papua New Guinea, Republic of the Marshall Islands, Samoa, Solomon Islands, Tonga, and Vanuatu.
In many of these countries, ERI personnel have also implemented reforms through drafting and implementing a new legislative framework for secured lending. ERI experts draft laws, ensuring that their structure maximizes effectiveness to promote lending. These reforms have led to a substantial increase in secured lending and have broadened access to finance among a large number of borrowers.