THE proposed Secured Transactions bill seeking to increase credit access for micro, small and medium enterprises (MSMEs) is expected to discourage small entrepreneurs as well as farmers and fisher folk from patronizing the onerous “5-6” lending scheme, experts said Friday.
In a roundtable discussion with The Manila Times, Chester Abellera of the World Bank’s International Finance Corp. and Deputy Administrator Ronald Ortile of the Land Registration Authority (LRA) said such a measure would reduce the risk of non-payment of small loans through the expansion of collateral coverage to future properties, and the creation of an online notice-based national collateral registry.
Abellera said that under existing law, there was a mismatch in the assets owned by small-time entrepreneurs and the collateral required by lending institutions.
This was on top of the fact that small-time entrepreneurs are easily lured by usurious lenders who treat them as friends and do not ask them to submit documents or sign forms, he said.
Abellera noted that lenders require 73 percent of collateral to be in the form of real estate, and the remaining 27 percent in the form of personal properties.
Real estate however accounts for only 22 percent of MSMEs’ assets, while 44 percent are in the form of vehicles, machinery and equipment. The rest, 34 percent, are accounts receivable.
“There are two challenges for those who want to secure loans. One, these people are not known by lenders so they can’t evaluate their credit standing. Two, lenders prefer fixed assets that appreciate in value. But under the secure transactions bill, even future assets, such as crops expected to be harvested, farm implements and the total number of manufactured [products]for next month, can be used as collateral,” Abellera said.
The bill also does away with elaborate descriptions required of personal properties used as collateral.
“Presently, if you use everything in your office as your collateral, you would have to indicate the number of chairs, tables, and the like. But with this proposal, you can just say everything inside my office will serve as my collateral,” Abellera said.
Lenders are expected to more willing to grant loans with an online notice-based national collateral registry under the LRA.
“Right now, it is hard to evaluate the [small businesses’]creditworthiness. You can, but it is really cumbersome to get the information. If it becomes a web-based collateral registry, the lenders can immediately see if the one applying for a loan already used the same collateral twice,” Ortile explained.
The bill also seeks to reduce the period for extrajudicial foreclosure, meaning a lender can immediately dispose of collateral that are perishable in nature, such as fruits and flowers, even without public bidding.
“Given such situations, this bill will also result in better satisfaction of debt, reduce the rate of non-performing loans for lenders, lower the cost of borrowing, get better loan conditions and lead to high productivity and more growth,” Abellera said.