A new system for business loans in Palau | Pacific Beat

A new system for business loans in Palau

A new system for business loans in Palau

Updated 22 January 2013, 18:45 AEST

The Asian Development Bank and Ausaid have funded a new electronic system for business loans in Palau.

It's part of the local government's efforts to improve the efficiency the financial sector.

The Secured Transactions Registry is available to the public on the Internet and first required some law reforms in Palau.

The Bank's team leader for law reform in the Pacific is Terry Reid.

Steve Rice asked him to explain what a Secured Transactions Registry is.

Presenter: Steve Rice

Speaker: The ADB's team leader for law reform in the Pacific is Terry Reid

REID: The registry runs as part of the secure transactions framework. What the Bank in Palau did was put in a new framework, which is a new law, which is followed by the registry and secure transactions is all about individuals or small businesses or any businesses in fact using moveable property as collateral for loans. So that's, for example, if you have a small business and the business wants to borrow some money for whatever reason, they're able to use their moveable property as collateral for that loan, so that could be anything from their equipment that they might have, their stock in trade, their accounts receivable, their motor vehicles. Any assets in fact that's movable. So the law allows that to happen, and those interests that are created under the law are then registered on an electronic registry which serves as notice for everybody that those interests against that movable property have actually, have been made.

RICE: Well, is this a new way of doing business for Palau?

REID: It certainly is a new way of doing business for Palau. Prior to this, coming online last week, and the new law which they passed in the middle of last year. It was possible, but extremely complicated and in terms of using movable property as collateral for loans and in fact there's a general reluctance by lenders in Palau to take movable property. So this creates new opportunities for lenders, and obviously new opportunities for borrowers.

RICE: And how did the laws have to be changed? Why was that significant?

REID: There was no legal framework in Palau that provided sufficient certainty for lenders when using movable property and this is quite common. In fact, many countries where ADB, together with AusaiD have supported this type of reform. It requires actually a new law to put be in place, which sets down a very clear rules, very straightforward rules, about movable property and how lenders secure their rights using movable property.

RICE: So this then gives the people who are handing out the loans more security in dealing with this sort of collateral, does it?

REID: Yeah, absolutely. It gives the bank a huge amount of certainty now, because there is a law that provides them with the protection and as a consequence, it obviously is going to remove a lot of the risk from lending to smaller businesses and to individuals, because they will be able to take collateral, movable collateral for the loan.

RICE: OK. And now people can get a loan if they've got a motor vehicle or a tractor or something like that. Will this open up a whole new audience of people who'll be able to get loans?

REID: Eh, certainly. I think in countries where they've adopted similar types of systems, we see a steady increase in the numbers of security interests over movable property that are actually recorded. So it does provide a significant opportunity, subject, of course, to all the other variables that, or the other factors that lenders take into account when providing finance.

RICE: So does this then lead to more business, do you think?

REID: Well, that's the hope, a greater ability for businesses to borrow money and leads to greater growth, greater jobs etc.

RICE: You say it's been put on the internet. Is that part of the reason why it's more attractive to banks that they can actually access all the information and see it plainly in public view?

REID: Yes, absolutely, and it lowers the transaction cost, not only for the lender, but certainly for the borrower. Because simply all a lender does now is log onto the system and enter the details as far as that lender's collateral is concerned and it's a very short process, and a relatively cheap process, and the point you make is an extremely good one, is that it's within public viewing, so anybody can view any of the information.

RICE: And what's the security like on the web site?

REID: Excellent security. Obviously the lenders are all have to secure logins and we've been using this type of registry with this type of reform for I think since about 2005, 2006 and we've never had any sort of hacking or any problem.

RICE: Well, what other countries in the Pacific have already gone through this process?

REID: In the Pacific, we started with FSM, was one of the first, was the first country to roll this out in 2006 and subsequently we've put this law and registry into Tonga, into Vanuatu, the Solomon Islands, the Marshall Islands.

RICE: And what's the feedback been like?

REID: Very, very positive.

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