Scooters, coracles, beasts of burden and even crop stocks are providing the poor in the Asia Pacific region with new business opportunities. It’s a huge leap of faith for usually stayed banks and finance companies, but ‘movable asset’ loans are taking off.
Intangible assets, goods that are easily hidden, lost or sold, present unique risks for financiers. Since the global financial crisis the appetite of bankers for taking unnecessary risk has significantly reduced.
To overcome this, countries wanting to offer movable asset loans are passing legislation to set up “secured transaction” registers, one lender in PNG – Credit Corporation – secures 90 percent of its loans against movable assets and all of those loans have gone to Indigenous entrepreneurs ::::
Lack of access to finance is one of the key factors keeping small-scale entrepreneurs in developing countries locked into the poverty trap, the problem isn’t their ability to pay back the loan but their lack of collateral to get finance in the first place, throughout Asia, few poor people own land. In the Pacific, people are landowners but the property is community-owned and can’t be put up as surety for a loan.
With nothing to offer for repossession, small and even medium-sized businesses are shut out of the credit market.
In Solomon Islands movable asset loans against cars, boats and equipment such as bulldozers and backhoes are being pioneered by PNG company, Credit Corporation.
In the past four years 90 percent of its loans have been on movable assets and all of those loans have gone to Indigenous entrepreneurs. Credit Corp’s general manager Tony Langston describes it as a revolution.
“The most exciting part is to see Solomon Islanders fully participate in the growth of the country,” Mr Langston said. “Long gone is the time when overseas companies coming to Solomon Islands benefit from all things. Now we can see rural people fully participating.”
Bankers are much more wary about credit risks post GFC, in China and Vietnam movable asset loans are more adventurous with loans taken out against agricultural produce, retail stock and credit due on invoices for work completed.
Intangible assets and goods that are easily hidden, lost or sold present unique risks. Since the global financial crisis the appetite of bankers for taking unnecessary chances has significantly reduced.
To overcome this, countries wanting to offer movable asset loans are passing legislation to set up “secured transaction” registers. Any asset pledged against a loan must be listed on the register and cannot be used against another bank loan or sold to anyone else without the bank’s permission.
But banks also need to change the way they work with their customers and get much more hands-on, in Vietnam, one young single mother using her cashew crops as collateral grew from a small farmer to the CEO of a company with three processing plants and serious export contracts. Those with access to movable asset loans are still the lucky ones.
In the Pacific only six nations have set up “secured transactions” registers and in Asia not all countries have embraced them.
The Manila-based Asian Development Bank – ADB – is working to increase those numbers with four more registers in the pipeline in the Pacific and other programs in Asia.
In many developing countries small to medium-sized – SMEs – local businesses generate around half of Gross Domestic Product – GDP – and employment, but despite recent efforts only a fifth have access to credit.
This is a missed opportunity, the ADB’s vice president of finance and risk management Thierry de Longuemar told Pacific bankers in Sydney recently.
“The under-served and subsequently underdeveloped SME sectors represent missed opportunities for economic growth and poverty reduction,” Mr de Longuemar said.
Mr Langston at Credit Corp, who is part of a new breed of indigenous bankers eager to provide opportunities to their countrymen, says he is not taking any risks he is not comfortable with. He is urging more staid institutions to join him.
“My message to other financial institutions would be ‘don’t be scared of the secured transaction process,'” Mr Langston said.
In Solomon Islands one of the more novel assets being put up as collateral is invoices to government departments, which are notorious for serious late-payment of bills. Without the movable asset loans road maintenance companies would grind to a halt.
Social Lending, A Microfinance Boom
The term ‘microfinance’ has become a buzz word in recent years, however a group of Catholic nuns have been doing it for decades. The success of social lending websites like Kiva mean many people associate microfinance with the internet and developing countries.
However the Sisters of the Good Shepherd first started their microfinance operation in Victoria in 1981, lending their own money interest-free to people who were struggling to afford household essentials.
Former Chief Commissioner of Victoria Police Christine Nixon is Chair of the board of Good Shepherd Microfinance.
Ms Nixon told ABC Melbourne’s Libbi Gorr that the Sisters were originally warned off the idea.
“All of their advisors said ‘you’ll never get your dough back’,” Ms Nixon said. “They got 98 per cent of their money back.”
Good Shepherd Microfinance now offers No Interest Loans – NILS – and other financial support at 650 locations around Australia, through more than 250 accredited community organisations. Ms Nixon says the loans of up to $1200 are available to people who are on a concession card and need to pay for essential goods or services.
“You can buy fridges, you can buy washing machines, you can buy a computer, you could perhaps pay for your kids to go to some excursion,” Ms Nixon said. “You can come to us and you can get a loan for no interest – it will come out of your pension be paid out at an amount you can afford.”
Ms Nixon said the No Interest Loans offer an alternative to high interest loans from so-called payday lenders, who often charge more than 20 per cent interest. The loans are also an alternative to expensive rent-to-buy schemes.
“We know that there are within Australia about 3.6 million people who are described as financially excluded,” Ms Nixon said. “These people don’t have credit cards, they really don’t get loans.”
Good Shepherd Microfinance partners with the National Australia Bank as well as state and federal governments to provide the loans. They also accept donations from the public toward the loan pool. Loan repayments go back into the loan pool to be re-lent to future applicants.
“It’s circular finance,” Ms Nixon said. “You pay it back, someone else gets a loan.”
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