Azerbaijan, Baku, Feb. 7 / Trend A. Akhundov /
The adoption of the bill on movable property in Azerbaijan will lower interest rates on bank loans, expert of the International Finance Corporation (IFC) on secured transactions and commercial organizations Everett Wohlers said during the round table on “Role of secured transactions and movable property register” in Baku today.
“The use of movable property as collateral will reduce the risk of banks,” he said. “This will ultimately increase their income and contribute to lower interest rates on loans.”
The bill on the movable property was prepared in 2008 within the IFC project to strengthen the financial infrastructure in Central Asia and Azerbaijan (ACAFI) with the USAID assistance.
He said that this reform will create an opportunity for the banks to introduce new products and open new markets for them.
“Today, banks prefer to give the loans for real estate as most assets of small and medium entrepreneurs fall to movable property,” he said. “The use of movable property as collateral will allow the banks to create new products – such as one-year credit lines for agricultural producers or products that finance the acquisition of business equipment.”
He said that the adoption of this law will expand the range of movable property used as collateral.
“The current personal property of the borrower and the property which will appear in the future can be pledged,” he said. For example, a farmer can use not only the cattle, which he has today, but his future offspring as collateral. Moreover, the existing and future receivables, intangible property, such as intellectual property, may be pledged. We determined personal property as the property not related to real estate in the bill.”
He said that similar legislation has been adopted in the countries of Eastern Europe and Central Asia or the work is underway.
This bill is also supported by the Association of Leasing Companies, as the register will also include property leased for the period higher than the fixed level, for example, for one year.
“I.e. this way register of part of leased property will be carried out,” Mr Wohlers said.
Adoption of the bill on personal estate will also expand taxable base for the country.
“The problem is that many private companies, especially small and medium-sized businesses can not get loans at reasonable rates of credit. The main reason for the refusal to grant a loan is that the security pledged is not sufficient. Banks do not want to lend on the security of movable property, or give them at high interest rates due to high risk,” Mr Wohlers said.
He said therefore in Azerbaijan in connection with movable property there is a need to adopt a new Law “On Secured Transactions” and the establishment of registration office.
“The law “On pledge”, adopted in 1998, in addition to the positive features, also has some drawbacks. Law “On Mortgage” in this case does not help. Also, the problem in the legislation is the lack of transparency of the right to bail in connection with vehicles,” Mr Wohlers noted.
He said the Central Bank of Azerbaijan deals with promotion of bill on movable property in Azerbaijan.
Creation of a register of movable property is expected under the ACAFI the project.
Register of movable property will include information about all kinds of movable property, except that which is already being registered, such as automobiles, various types of equipment.
According to Mr Wohlers, it has not been yet determined under which government structure this register will operate. In the world different practices are used, and registers operate under the central bank, ministry of finance, real estate register.
“This register will be a single centralized and under one government agency. All information will be processed in online mode,” Mr Wohlers said.
The ACAFI project aims at improving the infrastructure of financial markets in Central Asia (Kyrgyzstan, Tajikistan and Uzbekistan) and Azerbaijan through the establishment of an effective system of credit information sharing and implementation of training and certification in the field of risk management among the employees of financial institutions.
Project activities will help financial institutions to adopt a more rapid and correct credit decisions and, thus, increase the availability of financial services to individual consumers and small and medium enterprises in the region. This three-year project is being implemented in collaboration with the Government of Switzerland.