75241 DECEMBER 2012 ABOUT THE AUTHORS ALICE OUEDRAOGO It Started in Ghana: is a Senior Private Sector Development Specialist, in IFC’s Investment Climate Department. Implementing Africa’s First Collateral Registry During her career at IFC, she successfully managed and delivered IFC’s technical We all want to build something that matters. From the Advisory Services perspective, assistance program, mostly in Africa. no matter the business line, it’s about helping meaningful players accomplish sustainable results. However, entering a continent with a new product is something ISABEL CARUANA is a consultant in IFC’s Access to that can be extremely challenging. This SmartLesson tells of a project that—against Finance Business Line and works for the Secured Transactions and all odds—installed the first online collateral registry in Africa, designed in line with Collateral Registries program. Prior to joining IFC, she worked international best practices and following principles established by the United in Latin America fostering private sector development Nations Commission on International Trade Law. through financial inclusion projects. ELSA RODRIGUEZ Background is an Operations Analyst in IFC’s Access to Finance Business Line. Secured Lending in Ghana is an ongoing That meant it would be seen as a model for She has been working for the project that started in 2008. The objective was other African countries to follow. Ghana was Global Secured Transactions and Collateral Registries program in to expand access to business credit and to not chosen at random. It was the first African specific projects since 2010, encourage private sector growth by supporting country to show genuine interest in mostly in Sub-Saharan Africa and the development of a secured-transactions establishing a secured-transactions Latin America and the Caribbean. system. The project was designed to: 1) address framework. In late 2008, Ghana’s parliament shortcomings in the legal and regulatory passed the Borrowers and Lenders (B&L) Act. SUSANN TISCHENDORF framework of secured lending; 2) support the This law aimed at improving standards of is a Junior Professional Associate in the Investment Climate appropriate institutional framework for the disclosure of information by borrowers and Department. She leads delivery of the functions of the registry; and 3) lenders and prohibited certain credit practices, multimedia communications for disseminate knowledge through a in addition to promoting a consistent credit- the department and has regional communication strategy and build capacity enforcement framework. The act also experience in Africa, South Asia, Europe and Central Asia, and among stakeholders to accelerate the established the collateral registry. At that Latin America and the Caribbean. acceptance of the reforms and sustain their point, the Bank of Ghana (BOG) requested implementation by changing behaviors and IFC’s assistance in modernizing the existing APPROVING MANAGERS mindsets in Ghana. rudimentary registry. Tony Lythgoe, Head of Financial Infrastructure, Access to Finance. In 2008, a baseline study conducted in Ghana David Bridgman, Africa Regional concluded that about 85 percent of the “By this innovation, we Manager, Investment Climate lending activities of commercial banks were have introduced into the biased toward state-owned enterprises and credit market, improved large corporate clients (both local and foreign), standards of disclosure due to their low risk profiles. The fact that of information by lenders there was no national identity card system, no and borrowers and the credit information bureau, and no collateral promotion of a consistent registry at that time made lending to lesser- enforcement framework.� known clients a riskier activity. Lenders were wary of extending credit to small and medium —Former Governor of Bank of Ghana enterprises (SMEs) because of the lack of collateral or the risk that the same collateral would be used for multiple loans. On the other hand, there was some SME lending, but it was Although still not a perfect legal framework, limited to those borrowers that offered the current B&L Act was a good start to immovable property as collateral. encourage lenders to accept diverse movable property as collateral for credit. However, The Secured Lending in Ghana Project had set more steps were needed to fully adapt the quite an ambitious goal, given that Ghana was act to international best practices. With IFC’s going to become the first country in Africa to assistance, the BOG was able to propose have an electronic collateral registry in place. amendments to the Act and to design a SMARTLESSONS — DECEMBER 2012 1 • The strong commitment, support, and political influence of the project initiator and champion, the BoG. To support the implementation of the project, it is important to look for a partner that has a strong commitment and disposition toward achieving the results as well as being generally trusted and respected by the population. At all times, the BoG has remained open-minded and demonstrated a collaborative spirit, with high professional integrity. One way to judge or evaluate a partner’s commitment is through establishing clear and well- defined contributions in the cooperation agreement. What are they willing to contribute to the project? The BoG committed to the project with an in-kind (not monetary) contribution consisting of its own resources and time. The BoG put together a team to work on the Constance Swaniker (left)—chief executive officer and founder of B&L Act that established the collateral registry; it Accents & Art, Ghana—is an artist who started creating her pieces of sensitized key stakeholders to the need for a change in art (mostly furniture or home accessories) for a little pocket money. the creation and registration of charges. After a while, she was able to access her first loan by pledging her machinery as collateral. Thanks to the loan, she expanded her In addition, the BoG is a very influential institution in business and hired more than 30 men and women from the local Ghana, and it has the credibility to ensure that a secured- community. Now she is able to meet all the growing demand for her transactions reform is implemented. People have to feel products. that the institution they are giving the information to is trustworthy, which made the BoG an ideal candidate. modern web-based registry. Even though the project is We present the Ghana example as a demonstration of not expected to finish before mid-2015, we believe it has what central banks can do to promote the financial been a success, as measured by the number of registrations system for broader economic development. A strong, in the collateral registry since its implementation (40,554 committed institution needs to take charge of such registrations—more than five times the initial target). As initiatives to ensure timeliness in execution and success of June 2012, more than 5,000 SMEs and 22,000 (see Figure 1). microbusinesses had received loans secured with movable property, granted by banks and nonbank financial Lesson 2: Sooner rather than later: Public awareness institutions, corresponding to more than $3 billion in must start parallel to the implementation of the financing. reforms, if you’re going to be able to reach the majority of end users and benefit from positive Lessons Learned network effects. Lesson 1: Choose wisely: The project’s success is Even with strong partnerships, establishing a collateral- directly proportional to the commitment and registry reform takes a long time and quite a few influence of your partners. resources. So it is crucial that, by the time the collateral registry is in place, stakeholders such as banks, nonbank The Secured Lending in Ghana Project has been possible financial institutions, and enterprises have been informed because of the following: about it and are ready to make it part of their business routine. • Excellent work undertaken jointly by the IFC Global Team in collaboration with the country office, not only A collateral registry’s success depends on its users. providing the required technical expertise but also Lenders should know the benefits of using it. The adding pace and confidence in the implementation collateral registry is a crucial tool to assess their risk process. and make prudent financial decisions, since it brings Figure 1: Influence of Partners 2 SMARTLESSONS — DECEMBER 2012 Box 1: Seven Takeaways from Raising Awareness in a Communications Campaign: • Keep a long-term vision • Convince, don’t impose • Be context-sensitive • Plan, not react • Invest, not spend • Track impact • Be the owner—help make it work! A collateral registry employee shows how to register movable collateral in the system. transparency to the financial system. It protects their commitment, and best practices in customer service to serve interest in a specific collateral and establishes their the needs of the collateral registry. The first local company priority by determining whether a movable asset has hired was a Ghanaian information technology (IT) firm that been pledged before to guarantee other loans. Thus, was in charge of designing and implementing the software banks and nonbank financial institutions, as the main required to put the registry in place. The presence of a local IT users, need to populate the registry with information team created a sense of ownership for the BoG. It was no about the movable-asset-based loans they are longer necessary to subcontract a foreign third-party granting. This is part of the benefit of positive network enterprise to solve an issue of a developing country. In this effects. project, the developing country did it its own way. We found out that embedding the local IT firm within the registry staff Unfortunately, in Ghana the BoG didn’t have the capacity contributed to knowledge sharing and a deeper sense of at that time to deal with the increased workload that an belonging to a team that was working toward the same goal. awareness and communication campaign will bring. In Understandably, it will not be possible to hire local resources fact, the collateral registry started working in 2010, but in all IFC destinations. So a bonus benefit of using a local IT there are still lenders and borrowers that are unaware firm from a developing country such as Ghana is that, once of its existence. Promotion campaigns should have taken the software is created, projects can use it in other countries place earlier in the implementation process. It is that lack the infrastructure that Ghana had. important to raise awareness at every level, even before the collateral registry is in place. In Ghana, we should Lesson 4: Keep in mind your target, but account for have created the demand for the product earlier—at the time the collateral registry was being built—but this was potential impact in underserved segments: How not possible because of the lack of resources from the secured lending in Ghana affected microenterprises client side. and women. Raising curiosity and knowledge among the population When the secured transactions and collateral registries team will create the positive network effects that will denote started Ghana’s reform, the objectives of the project were to the success of the secured-transactions reform. Looking benefit SMEs. The plan was to increase access to credit for forward to Ghana’s next steps, IFC has hired a local public SMEs. However, when gathering the data, we surprisingly relations company, which is working with the BoG to enhance stakeholder awareness of the provisions of the B&L Act and the operations of the registry. Box 1 lists “For us in WWB [Women’s World Banking], where seven of the lessons we learned about raising awareness during the project. women don’t have immovable property for securities, the introduction of the registry has helped, in that we Lesson 3: Under the same roof: When possible, could take stocks, for example, vehicles, for example, engage local stakeholders. household assets, business equipment as security for It was not arbitrary that to spark awareness, IFC hired a loans, and this has gone a long way [toward] helping Ghanaian public relations company with better knowledge other women to come on board to take loans.� of the local market. The Ghana project proved that, whenever possible, it is best to use local providers. Still, there are certain issues to be wary of when hiring locally, such as —Michaelina Orleans-Linday, the following: Does the country adhere to international Risk Manager, Women’s World Banking standards? Does the country possess enough infrastructure? resources? commitment to good service? Click here to watch the associated video In Ghana, we found that the country did have the resources, SMARTLESSONS — DECEMBER 2012 3 discovered that the majority of firms reached were microenterprises and women entrepreneurs. With more than Figure 2: Increase in Knowledge about Secured Transactions 22,000 loans to microenterprises in the first six months of 2012, it has become the first project with such an important reach. and Collateral Registries Thus, we have learned that a secured-transactions reform can very well affect microenterprises, and that they should be included in our targets and metrics. It is important to open the scope in data gathering to allow for variables that you may have thought were not affecting the project. As a result, we now measure microenterprise reach as part of the IFC Development Goals (Financial Services). Women have been especially affected by the secured- lending reform. According to an Access to Credit survey of women entrepreneurs in Ghana, women tend to own fewer and lower-value assets. Thus, thanks to the security that the collateral registry presents to banks in assessing risk, women are able to use their assets to access credit. More than 10,000 women entrepreneurs have been able to gain access to finance using movable assets as collateral. Lesson 5: The more, the merrier: Developing strategic knowledge-sharing platforms can multiply how much the participants felt that they had increased their the results across borders. knowledge about secured transactions and collateral registries as a result of the event. Sharing knowledge across countries helps us realize the feasibility of the reforms, using as models other countries Developing a strategic learning platform such as the P2P that have already undergone such reforms. Once the event in Ghana has a multiplier effect in other countries, collateral registry was working at full speed, IFC decided encouraging them to undertake the necessary steps to to embark on a peer-to-peer (P2P) learning event in Accra, improve access to credit through secured-lending reforms Ghana’s capital. More than 110 participants from 14 in their own countries. These initiatives have to be African countries attended the event, representing government agencies, financial institutions, and the private sector. “This event should be encouraged. Previously, we have had peer-to-peer events on all indicators, but this specific The goals of the P2P event were to share best practices, ideas, opinions, and expertise on the legal and institutional focus on secured transactions has been very educative framework governing the creation, registration, and and in-depth. Please keep it up and focus on practical enforcement of security against movable assets in Africa; issues where we see the testimonies of the beneficiaries.� and to provide the opportunity for other African countries to learn from Ghana’s experience in implementing a secured- —Anonymous comment from a P2P evaluation form transactions reform that has successfully facilitated access to credit for businesses and individuals using movable assets as collateral for loans. Figure 2 shows the results of a survey of Click here to watch the associated video participants following the P2P event in Accra. It indicates The Peer-to-Peer Secured Transactions and Collateral Registries Event in Accra promoted lively interaction among participants. 4 SMARTLESSONS — DECEMBER 2012 “The Ghanaian example will help my country a lot in implementing similar reforms. Apart from the interaction with representatives from other African countries, what was most interesting for me has been learning what steps my country needs to take in creating a best- practice model for reforms, especially how to regulate business activities in the formal and informal sector of Burundi.� —Melchior Wagara, Deputy Minister of the Central Bank of Burundi Click here to watch the associated video strategic, in the sense that the setup of the CONCLUSION event is almost as important as the event itself. It was the setup of the P2P event in The Secured Lending in Ghana Project has Accra, Ghana that made it a success. proven that IFC is still succeeding in expanding new products across regions, There were two key elements that made the even if it’s for the first time. We consider this setup successful. First, targeting the right project a sustainable, replicable model that people, such as decision makers from combines local resources and international different countries that were ready to make expertise—a pioneer for other countries to a difference and were willing to take on follow. Some African countries have already such a reform. Second, using colleagues to formally expressed interest in implementing help identify and fund the attendees. This a secured-lending reform inspired by Ghana’s effort was a combination of World Bank and success in developing one of the best IFC personnel, including staff from three collateral registries worldwide. Furthermore, different business lines in IFC Advisory it sets a precedent to encourage other IFC Services. teams to break geographical frontiers and explore new markets. Let’s keep it up! DISCLAIMER SmartLessons is an awards program to share lessons learned in development-oriented advisory services and investment operations. The findings, interpretations, and conclusions expressed in this paper are those of the author(s) and do not necessarily reflect the views of IFC or its partner organizations, the Executive Directors of The World Bank or the governments they represent. IFC does not assume any responsibility for the completeness or accuracy of the information contained in this document. Please see the terms and conditions at www.ifc.org/ smartlessons or contact the program at smartlessons@ifc.org. 5 SMARTLESSONS — DECEMBER 2012