investment climate July 2011 IN P R AC TIC E no. 17 Business regulation 64999 Leveraging Technology to Support Business Registration Reform Insights from recent country experience Governments are revamping their processes for business registration, John r. Wille which can help improve the competitiveness of their investment Karim o. Belayachi climates and drive growth in formally registered firms. Company numa de Magalhaes registrars are deploying information and communications technology Frederic Meunier (ICT) applications to reduce the time and effort required for new John Wille (jwille@worldbank. businesses to register, improve regulatory oversight by government, and org) is Lead Private Sector Development Specialist, facilitate access to company information. A recent survey conducted Investment Climate, World Bank by the Doing Business and investment climate teams of the World Group, and Numa de Magalhaes (ndemagalhaes@worldbank.org) Bank Group examines the experience of 34 company registrars in is Senior Information Officer, implementing new or upgraded technology solutions. This note Investment Climate, World Bank discusses the survey’s key findings, identifies several factors influencing Group. They advise governments on the use of e-Government the registrars’ approaches, and summarizes key lessons in choosing and solutions to improve government- implementing ICT solutions. to-business service delivery, in support of investment climate reform. Business registration is increasingly recognized register a business can have a material effect on as an important gateway for entrepreneurs into new registrations.1 While many countries have Karim O. Belayachi the formal economy. Through formal business already undertaken legal and procedural reforms (kbelayachi@worldbank.org), registration, they can benefit from increased to reduce the burden of registration on new Private Sector Development rights, such as access to government services, and existing firms, further significant gains in Specialist, and Frederic Meunier fair treatment under law, and limited liability efficiency and accessibility can only be realized (fmeunier@worldbank.org), (in many cases). Registered enterprises also have through the application of technology. Thus, opportunities to grow through improved access leveraging technology to improve client service Operations Analyst, work on to finance and through potential clients in the and data-sharing capabilities is at the top of the the Doing Business project formal economy and government. Formalization agenda for most company registrars.2 in the World Bank Group’s also involves increased obligations, including Global Indicators and Analysis compliance with tax laws as well as regulatory According to the Doing Business report, 54 Department. They produce the and information disclosure requirements. economies introduced new technology in their Doing Business report’s Starting company registration processes during the Empirical evidence has shown that significant past seven years.3 The driving forces behind a Business indicator data across reductions in the time and costs required to registry automation are manifold, including: 183 economies. competitive pressures to reduce the time and “one-stop shops� combining business, tax, social costs for business registration as well as improve security, and other key registrations into a single access for smaller firms that operate at a distance online interface which also accepts various types of from the registrar’s offices (in many countries, e-payments. Developing countries are increasingly a businessperson must still go to the capital city joining this trend, with registry automation to register); increasing demands for company projects proliferating—initially in Eastern Europe information within government for regulatory and Latin America, and more recently in Africa oversight and audit purposes and the consequent and South Asia. need for government databases to share information; and revenue opportunities arising as businesses and financial institutions seek company information The survey: context of to inform their risk analysis of potential trading the sample initiatives counterparties and borrowers. The survey results found that the initiatives to Figure 1 illustrates this growing “ecosystem� of automate the company registries typically occurred information suppliers and users surrounding the within a broader context of legal and regulatory company registry. reform affecting business registration, with almost three-quarters of countries enacting new laws As noted in Figure 2, the majority of OECD4 and regulations concurrent with the technology countries now operate an array of e-services relating initiative. Almost half had also reengineered the to business registration, ranging from online business registration process before implementation name search and company registration to virtual of the registry software application. Reforms to Figure 1: Company Registry Ecosystem Businesses and e-Government Consumers of intermediaries partners company information Registration functions Other business start-up Private sector (credit registrations (tax identification, bureaus, financial Name search social security, statistics) institutions, trading counterparties) Company registration Public sector Company registry regulators (licensing application agencies, tax authorities, customs Annual agencies) accounts filing Other registries Amendments (collateral, land, to registration Shared services infrastructure intellectual property) (e-payment, secure authentication) e company registry is the information exchange hub for businesses and government. Source: Authors. Investment Climate In Practice 2 Figure 2: E-services Available for Starting a Business (percent providing service within economies measured by Doing Business) 100 10% 80 60 40 20 0 me igh inco Dh fic OEC Paci ia & Ea st As Asia en tral e &C ean Euro p eC aribb ern & th Asia Na E- East rica h m s Co ax/VA e veri ervi T me Sout La tin A A frica S Fee mp a Tr fica t ce th p e Nor a Lab ocial s ayme ny reg gistra ion East & Afric or r ecu nt istr atio tion dle Sah aran egis rity Mid trat regi n Sub- ion stra tion Developing countries lag behind their OECD counterparts in moving business registration functions online. Source: World Bank and IFC 2004–10 (Doing Business database). Note: VAT abbreviates value-added tax. improve the business registration process can infrastructure and data centers where such critical often be enabled by automation. For example, software applications can be hosted in a secure and governments may decide to eliminate paper-based reliable environment. application forms, stamps, and physical signatures as well as to implement standardized business rules Changes to the business operating model so that manual reviews of applicant information frequently occurred with the implementation of can be more easily replaced by computer logic. the company registry technology platform. Fully online application processes, including digital While most of the registry automation projects signatures and e-payment of fees, were introduced surveyed were standalone initiatives, respondents as part of the registry automation solution in almost About the Survey from many developing economies indicated that all developed economies surveyed and about half their projects were often implemented in the of developing economies. Also, to encourage The survey posed 37 questions context of a larger e-Government program. Such use of the online system, some economies set concerning company registries, programs can improve the operational framework lower fees for online registration. For example, in approach to implementing for online company registries by establishing Belgium, online registration costs €140 versus ICT applications, results interoperability standards to permit the exchange €2,004 for paper-based registration. In Canada, achieved, and lessons learned. of information between government databases; the company registration costs Can$200 for Responses were received from 26 registrars (or their advisors/ furnishing key shared services, such as government- online and Can$350 for paper applications. Such ICT vendors) in developing wide e-payment portals and user authentication incentives have been cited as factors accelerating countries and 8 registrars in systems; and providing government broadband the uptake of the ICT solution. industrialized economies. Investment Climate In Practice 3 Common features and government was typically conducted with the tax functions in registry authority (59 percent), and to a lesser extent with technology solutions the collateral registry (26 percent) and the social security agency (18 percent). Experience has shown Registry software applications today range from that establishing a virtual “one-stop shop� through simple databases and back-office workflow which all required information is collected via a single applications using generic software tools to online interface and shared within government can sophisticated, Web-based systems that enable reduce registration time and eliminate redundant customers and intermediaries to conduct business information requirements. Relatively few software with the registrar entirely online. Table 1, which applications directly supported the issuance of summarizes the features and functionalities addressed business operating permits and trade licenses, in the systems implemented by survey respondents, indicating that while electronic data interchange shows the relatively high level of sophistication— among government agencies is increasing, there even among developing country registrars. For is little movement to consolidate registration and instance, nearly all of the systems provided for licensing into a common technology platform. online name search and back-office processing of applications, while online company registration and annual account filing were supported by about Procurement and half of the software applications surveyed. Many management of the registry registrars begin their automation efforts by focusing technology solution on the back office, in order to build internal capacity before exposing their staff to the increased demands Government budgets funded the technology solution of online service delivery. for all the developed country registrars and just under half of the respondents from developing countries. Over two-thirds of the systems enabled electronic Many donors have provided financial support for data sharing with other government agencies as well registry automation in developing countries.5 The as the dissemination of company information to cost of registry solutions varied greatly, ranging the private sector. This information sharing within from $20,000 to several million dollars, depending on the scope of the solution implemented. World Bank Group project experience also shows that Table 1: Features and Functions Addressed digitization of the existing paper records can be a in Surveyed Registry Systems considerable expense, particularly in larger countries Percent of just moving online. Software functionality surveyed systems In selecting the technology solution, survey Front counter and back-office automation and workflow management 83 respondents indicated that having features and functionality that best fit their needs was the most Online name search 83 important consideration, as shown in Figure 3. Data exchange with other government agencies (registration with tax 68 Availability of local support and security features of authorities, social security, and so on) the application were also important factors, while cost of the solution was of lesser concern. Dissemination of company information to the business community and 68 other government agencies through the registry Web site These selection criteria may help explain why the Digitization of all registry records and documents (fully paperless process) 59 majority of registry solutions cited in the survey responses were characterized as “custom developed,� Support for multiple registry offices 59 although this finding may also reflect the unique Online registration of companies and other business types 53 nature of registry software products available. Most software on the market is based on solutions Online filing of annual accounts 47 initially implemented at leading company registries (for example, in New Zealand and Norway) and Ability for company to securely update its registry records online 41 subsequently adapted for use in other countries; Registration for local business operating permits, trade licenses 18 few, if any, “shrink-wrapped� package applications are offered. Investment Climate In Practice 4 As a result, for nearly all registrars surveyed, the Figure 3: Main Factors in Selection government owns the intellectual property (source of ICT Solution code) for the registry application. A different (percent of survey respondents) approach has emerged among registries in small island states that use “software as a service�— sharing the application and relying on an out-of- Features and functionality country host for their data. In the case of Tonga, best met the needs the New Zealand Companies Office provides a Availability of local support version of its own software application and hosts the Tongan data on its servers. Several vendors have Security features of the application indicated to the World Bank Group that they offer Technology requirements fit their products on a “software-as-a-service� basis. existing IT infrastructure Cost The survey finds significant differences in the Recommendation by consultant management and maintenance of the registry technology platform, once implemented. While 0 10 20 30 40 50 60 almost all developing economies rely on government staff to operate and maintain the e factors that most frequently influenced survey respondents’ software purchase application, developed economies tend to favor decisions were compatibility with the registrar’s business requirements and local outsourced contractor staff for this service. In a support capabilities. Surprisingly, cost was considered a deciding factor by only few cases, one of two other approaches was taken: slightly more than one-third of respondents. either both government and contractor information technology staff manage the platform together, or the vendor supports the hardware infrastructure in a government or private data center while application maintenance and upgrades are managed Technology is a means, but not an end. by government staff. Re-think the registration process first The registrars surveyed generally agree that simply The ongoing management of the technology making a process electronic does not necessarily application was funded from internal government make it better. The New Zealand Companies budgets in 44 percent of registrars surveyed, while Office, which ranks first on the “starting a business� 23 percent relied on user fees from registrations, indicator in Doing Business 2011, made it clear— annual report filings, and information products. reengineering the business process prior to the The balance drew funding from both sources. As deployment of the ICT solution was critical. There noted previously, moving company data online is no point to making an archaic system electronic. provides the opportunity for registrars to create new For example, Bangladesh’s Registrar of Joint revenue streams through the sharing of company Stock Companies initially automated the manual information with the private sector. Some business registration process, which involved multiple layers registries realize over 20 percent of their funding of review and approval, with the result that little by packaging registry information into products processing time was saved. Simplifying the review tailored for various customer groups. For example, process and substituting automated business rules bulk data is marketed to credit reporting agencies to check data ultimately allowed the registrar and marketing firms, and tailored data products to fully realize the efficiencies of automation. are offered to financial institutions and companies Similarly, Ecuador put a strong emphasis on analyzing potential trading counterparts. simplifying the registration procedures to allow for better internal controls, while making the entire process more efficient. Lessons from the surveyed registrars Buy-in is important. Develop a comprehensive communications strategy The survey respondents shared many of their Improving the business registration process will challenges and lessons learned in implementing not have its anticipated impact if the end-users are registry technology solutions. Four common not explicitly informed of these enhancements. lessons emerged from their responses: The majority of registries surveyed indicated Investment Climate In Practice 5 Box 1: Key Considerations in Implementing to come through the old channels of notaries. Company Registry Software Applications Likewise, businesses continued to prefer the paper forms and certificates with official seals. The 1. Complete the legal and business process reforms before government undertook a communications effort to educate stakeholders and also reassure them of the automation—to fully realize the potential benefits of technology. validity of electronic data. 2. Critically assess the agency’s ICT capacity, both staff and Bangladesh’s registrar chose to roll out the infrastructure—if internal capacity is inadequate, identify hosting implementation in separate phases to allow time alternatives within government or the private sector. for the stakeholders to become accustomed to the new services. The registrar initially introduced electronic name clearance, followed by online 3. Fully document the business and functionality requirements before business registration, and lastly, online filing of procuring a technology solution—this will also inform decisions annual returns. Through this sequential approach, concerning packaged versus custom-developed software. the registrar was able to minimize the difficulties encountered by new users to the system, and in turn, 4. Identify and build data linkages with other government agencies— established a sound basis for the next phase. New both to simplify the overall business entry process and ensure company Zealand also introduced new enhancements gradually rather than through a single “big bang� deployment. data is fully leveraged to improve regulatory oversight. Staff training and institutional capacity matter 5. Leverage the technology platform to produce new revenue streams— For internal stakeholders, such as registry personnel, including information products for financial institutions, credit it is particularly important to adopt a change bureaus, and other firms seeking company data. management strategy to ensure that staff has the capacity to effectively utilize the new technology. Cultural and bureaucratic obstacles to the adoption 6. Address change management and communications in the of the new system should be addressed during implementation plan—to ensure all stakeholders are fully invested in implementation. For example, in Nepal the initial the new solution. attempt at automation failed because the staff did not find the software application user-friendly and elected to return to the paper-based system. they had underestimated the importance of communications and involving all stakeholders, The implementation of new and simpler means which affected the uptake of the new services of interacting with the company registry may lead once implemented. to greater volumes of interactions and requests for information and assistance. In Ireland, the new At times, a simple communications campaign to electronic system led to a significant increase in explain the changes was enough. Other situations registrations, which initially resulted in a backlog were more complex, requiring more intensive of unprocessed applications. The registry also stakeholder management, particularly targeting experienced a large spike in inquiries from the those who objected to some aspect of the reform public submitted through the new Web site. New because they felt their interests were threatened by demands required new measures. An “Information the advent of the new technology. The local business Unit� was set up to deal with the increased flow of culture may delay the adoption of the automated inquiries. With more visitors to the Web site, the registry, with some users opting to submit paper registry also took the opportunity to develop clear forms as they have done in the past. In such cases, a and concise publications that provide updated public information effort emphasizing the benefits information about compliance with the company of online registration is essential. law and the new registration procedures. For example, after implementing a new streamlined Always consider the local technological and online process for business registration, Georgia regulatory environment noticed a slow adoption of the new system, with For governments in many developing economies, most new company registrations continuing unreliable ICT infrastructure has presented a major Investment Climate In Practice 6 challenge to their reforms. Registrars should take Endnotes investment Climate into account both the availability and reliability of the ICT infrastructure when designing their in Practice 1 See Klapper and Love (2011), which uses solutions for registry automation. For example, panel data on the number of new firm Rwanda encountered issues with Internet bandwidth registrations in 92 countries to study how the This note series is published and reliability, which made it difficult for clients to magnitude of reforms affects its impact on by the Investment Climate access the online interface. In Liberia, on-site diesel new firm registrations. Advisory Services of the World generators were required to ensure a reliable electricity 2 A company registrar is an agency, ministry, Bank Group. It discusses practical supply to the registry, which posed a significant or department (normally a government additional expense. In Serbia, the lack of local online considerations and approaches body) within a country, state, or province payment processors created a major challenge to fully that is responsible for the registration or for implementing reforms that automating the registration process. incorporation of companies or businesses. aim to improve the business 3 See World Bank and IFC (2004–10). The environment. The findings, The legal and regulatory infrastructure also can pose Doing Business project benchmarks business interpretations, and conclusions problems—outdated company laws and the lack of regulations across 183 economies. It annually in this note are those of a legal basis for online transactions inhibit many records improvements which, among others, registrars from making full use of their automated the authors and do not necessarily include the implementation of technology registry systems. This was the case for Serbia until solutions. reflect the views of the Executive recently when such laws were finally implemented. 4 Organisation for Economic Co-operation Directors of the World Bank or the Kenya and El Salvador, among others, continue to and Development. governments they represent. face this obstacle. In several instances, the registry 5 These donors include the World Bank Group, systems were fully implemented before the legal the United States Agency for International reforms were enacted, creating a situation in which Development/Millennium Challenge about the Investment registrations could have been rendered illegal by Corporation, the Swedish International Climate Advisory the courts in the case of a dispute. Development Cooperation Agency, and the Investment Climate Facility for Africa. Services Conclusion References The Investment Climate Advisory Services of the World Bank Group The survey results highlight the important technical Klapper, Leora, and Inessa Love. 2011. The considerations of a registry automation project helps governments implement Impact of Business Environment Reforms on New and the approaches taken by different countries to Firm Registration. Report. World Bank Group, reforms to improve their business ensure their technology solutions met stakeholders’ Washington, D.C. environments and encourage and requirements and were technically and financially retain investment, thus fostering sustainable. The experience of these countries also World Bank and International Finance Corporation competitive markets, growth, and provides valuable insight into the non-technological (IFC). 2004–10. Doing Business annual reports. job creation. Funding is provided factors which must be addressed at the same time, Washington, D.C. www.doingbusiness.org. including the importance of business process re- by the World Bank Group (IFC, engineering, change management, and stakeholder MIGA, and the World Bank) and communications to the success of these initiatives. over 15 donor partners working through the multidonor FIAS While reform efforts have begun by addressing legal platform. and procedural improvements, with technology enhancements coming at a later stage, it is important to harmonize all initiatives affecting the business registration function to avoid inconsistencies that can disrupt the registry operation or fail in realizing promised efficiency gains. Investment Climate In Practice 7 the investment Climate in Practice note series (www.wbginvestmentclimate.org) no. 17: “Leveraging Technology to Support Business Registration Reform: Insights from recent country experience.� John R. Wille, Karim O. 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