Collateral regulation

The establishment of collateral in relation to a loan transaction means that the lender is assured of recovering, if necessary by court action, the material value of the loan. For an asset to serve as collateral it must be appropriable and saleable; it must be something which would constitute a loss to the borrower; it must be durable or sustainable during the loan contract and it must have transaction costs that are reasonable for borrowers, both with regard to the loan amount and the term of the loan. The presence of risk in loan transactions means that the outreach of financial services is influenced by the collateral that borrowers can offer. Conventional collateral includes the mortgage of land or pledging of moveable assets. It also includes third-party guarantees or endorsements. Leasing is an alternative arrangement whereby ownership of an asset is not transferred until the item is fully paid for. Policy-makers can help to create a system and legal environment in which collateral may be effectively used, e.g. by accelerating the issuance of land rights, renting rights, and authorization papers, ensuring fair and accurate asset valuation, setting up out-of court settlement systems, etc.

Library Resources

resource title type year resource
Quel bilan pour la politique agricole ouest-africaine, dix ans après son adoption ? Report 2016 French (fr)

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This resource appears in: Collateral regulation

En janvier 2005, les chefs d’Etat et de gouvernement de la Communauté économique des Etats de l’Afrique de l’Ouest (Cedeao) adoptaient une politique agricole régionale : l’Ecowap. Dix ans plus tard, où en est-on de cette politique ambitieuse qui visait à la fois l’amélioration de la sécurité alimentaire, le développement économique et social et la réduction de la pauvreté et des inégalités entre les territoires de la région ? Quels programmes et quels dispositifs ont été mis en œuvre ? Ont-ils permis de se rapprocher des objectifs fixés ? Cette note de synthèse aborde ces questions. Elle a été réalisée à la suite du processus de bilan des dix premières années de l’Ecowap, conduit en 2015 par la Cedeao. La première partie de cette note rappelle l’ambition et les objectifs initiaux de l’Ecowap. La seconde vise à dresser un état des lieux de la mise en œuvre de cette politique. La troisième partie fait ressortir quelques éléments de bilan et de débats.  

Lien vers la publication  -  French (fr)

Author Inter-réseaux Développement rural
Number of Pages 8
Primary Language French (fr)
Region / Country Global, Africa, Western Africa
Keywords Dialogue Politique, Politique agricole, Coopération régionale, Sécurité alimentaire, Développement économique, Investissement Agricole
Related Resources
Bringing More Dead Capital to Life Paper 2006

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This resource appears in: Collateral regulation

This paper highlights that banks are more likely to lend – and at better rates – when a borrower can offer collateral to secure the loan. Lenders may provide unsecured credit to some borrowers, but the amounts are less and the costs are higher than for secured loans. As the paper notes, this can be particularly true outside the urban centres, where seasonal production cycles and cyclical cash flow require flexibility in structuring credit. When borrowers can offer valuable collateral, lenders provide more and better rural and agricultural credit.

Worldwide, the best known and most utilised form of collateral is real property – land and the buildings on it. Unfortunately, many people in developing countries do not own real property, or not in a manner that banks recognize as acceptable collateral. Farmers often own land, but even if they have titles, they may be understandably hesitant to risk their newly titled holdings to secure loans. Others may only rent or hold customary rights, which are generally not accepted as collateral. More options are needed to expand access to secured lending in the agricultural sector.

This paper draws attention to the various types of property that can be used as collateral. Movable and intangible property can serve as collateral and broaden the secured lending options for both borrowers and lenders.2 Tangible movable property such as cars, tractors, farming equipment, inventory, crops, cows and a host of other items are valuable forms of collateral in some countries. Intangible property - accounts receivable, trademarks, leases, future harvests and even rights in these rights (derivatives) - can also serve as collateral and enable producers to meet financing needs. These various forms of property can be used effectively for secured lending, however, only if the legal system permits their use as collateral.

In much of developing world, movable and intangible property is overlooked. This note explores the rationale for moveable property registries and how these systems work to broaden access to credit.

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