Colombia: IFC and Partners Launch Secured Lending Framework to Boost Financing f...
Colombia, May, 27 2014 -
IFC, a member of the World Bank Group, officially launched in collaboration with Colombia’s Superintendence of Corporations and the Colombian Federation of Chambers of Commerce (Confecamaras), a secured lending platform in Colombia that will greatly expand financing to micro, small and medium-sized enterprises (MSMEs).
The new framework, which allows borrowers to obtain loans by using as collateral resources such as their inventory, machinery or crops, has generated more than US$5b in loans since starting operations in March and more than 104 financial institutions have registered to act as lenders.
“With this new tool we expect that entrepreneurs in Colombia will have easier access to loans, with improved time frames and lower interest rates,” Colombia’s superintendent of Corporations Luis Guillermo Velez Cabrera said. “The collateral registry will drive an increase in financial access.”
Many small enterprises in Latin America and the Caribbean lack the necessary collateral to receive loans from the formal banking sector. That is also the case in Colombia, where the IFC worked in a three year partnership with the Superintendence of Corporations to develop the legal and institutional frameworks that govern secured transactions with a view to transforming the local credit culture.
'With this reform Colombia has taken an important step to expand financial inclusion and open its doors to new investments,’’ IFC’s acting regional manager for the Andean Region Juan Gonzalo Flores said. “Access to finance is essential for the productive sector and because of the importance of small and medium enterprises in the economies of Latin America and the Caribbean, this reform is going to drive the development of Colombia and serve as an example to the region,” he said.
Difficulty in accessing loans from the financial sector is often cited in Latin America as a key obstacle for SMEs. A 2010 survey in Colombia, for example, showed that 40% of businesses polled viewed lack of credit as the main impediment to growth and competiveness.
Collateral provides the basis for free-flowing credit markets by reducing potential losses lenders face from non-payment. While land and buildings are often used as collateral for loans, the use of movable assets is restricted because many countries do not have the required laws and systems for these transactions.
Previous experiences show that strengthening these platforms for movable assets lending in emerging economies can have a dramatic impact in economic development by providing the regulatory structure that enables small business owners to use assets they do have such as inventory, crops or equipment as collateral to obtain loans.
The positive outcomes generated by these changes include sustainable economic growth, job creation and ensuring broad based financial inclusion. That is already the case in Colombia, where some of the country’s largest banks have started to provide loans accepting as collateral items such as embroidery machines, milking equipment and rice crops.
IFC has worked with partners in more than 20 countries to help establish modern, web-based collateral registries to overcome lending constraints and increase the availability of credit.