[7]
Access to financial services and resources – depends on the current
situation of the market, its regulation frames and the technological environment.
Usage of financial services and resources – includes information on
consumer potential to use financial services (e.g., possibility to pay via POS
terminals, availability of bank service units in rural areas), and how regular and
frequent the usage is.
Quality of financial services and resources – identifies to what extend
financial services and products meet consumer demand. Moreover, the range of
provided products and services, the level of consumers’ financial literacy that
allow them to benefit from those services, as well as consumer finance protection
during the overall process are part of the indicated statement.
Realization of financial inclusion targets directly depends on sound, resilient
and effective financial infrastructure in the first instance. Financial infrastructure
both ensures effective, safe and easy access of economic agents to financial
resources and services, and cost effective and low risk services by financial service
providers. 3 elements of the financial infrastructure have a significant effect on
discharge of the above functions:
i.
The secured transactions mechanism;
ii.
The credit reporting system;
iii.
Payment systems.
Certain books include availability of unified systems that allow
identification of persons to the ranks of infrastructural elements contributing to
financial inclusion. A related detailed analysis was conducted within this research.
To note, there is a unified electronic database of ID cards in place in Azerbaijan.
The secured transactions mechanism
Credit institutions require collateral from borrowers to prevent information
asymmetry and minimize credit risks likely to occur in future. The survey by
World Bank experts in 100 countries across the world suggests that, collateral was
[8]
requried in 75% of credit requests.
1
In some instances business subjects refused to
apply for a bank loan due to insufficiency or lack of collateral, while in most cases
banks denied to grant loans because of the said reasons. The following chart
displays the situation across regions:
Chart 1. Indicators of denial to issue loans due to insufficient collateral across
regions
2
.
1 Inessa Love, Sole Martínez Pería and Sandeep Singh. “Collateral Registries for Movable Assets: Does their
Introduction Spur Firms’ Access to Finance?” January, 2013
2 Safavian, Mehnaz; Fleisig, Heywood; Steinbuks, Jevgenijs. 2006. Unlocking Dead Capital. Viewpoint: Public
Policy for the Private Sector; Note No. 307.
0%
10%
20%
30%
40%
50%
60%
70%
80%
Africa
Eastern Asia Europe &
Central Asia
Latin
America
Southern
Asia
[9]
Chart 2. Indicators of refusal by business subjects to apply for loans due to high
collateral requirements across regions
3
.
Attaching a particular attention to one aspect experts identified that 78% of
capital resereves of business subjects of developing countries was in movable
assets – vehicles, equipment, debtor claims, while 22% in real estate
4
. OECD
countries and developing markets differ on the appropriate indicator. The
following table displays the LTV in OECD countries and developing markets:
LTV ratios
Type of collateral
OECD
Developing economies
Simple
Complex
Real estate
up to 90%
up to 80%
cities: 60-80%
regions: 30-60%
Movable assets, including
Vehicles
up to 100%
70-100%
60-85%
Equipment
up to 80%
up to 80%
60-80%
3
Safavian, Mehnaz; Fleisig, Heywood; Steinbuks, Jevgenijs. 2006. Unlocking Dead Capital. Viewpoint: Public
Policy for the Private Sector; Note No. 307.
4
Alvarez de la Campa, 2011
0%
5%
10%
15%
20%
25%
30%
35%
Africa
Eastern Asia
Europe &
Central Asia
Latin
America
Southern
Asia
[10]
LTV ratios
Type of collateral
OECD
Developing economies
Simple
Complex
(secondary
collateral)
Claims
up to 80%
up to 50%
Secondary
collateral
Reserves
up to 50%
Secondary
collateral
Secondary
collateral
Table 1. LTV ratios by types of collateral
5
.
The ‘simple’ category in the above table includes modern, while ‘complex’
includes the non-reformed secured transactions system.
It should be noted that not all creditors seem eager to accept movable assets
as collateral. Hence, the basic premise is to have an accurately elaborated
normative – legal frame in place for relevant transactions. Movable property in
circulation becomes ‘dead capital’ without a regulatory basis
6
. We will present
situations-based calculations of the said capital within the following chapters of the
study.
A secured transaction is defined as the transaction where a borrower
(pledger) delivers a creditor (pledgee) the right to dispose of a movable property to
meet a liability and assigns other rights. The main implementation mechanism of
secured transactions is registers that establish rights over movable property.
According to World Bank experts
7
, a register of movable property should
meet the following parameters to be effective:
1.
A warning based system – no movable assets related document should be
delivered, and no verification maintained with respect to legalness of registered
operations;
5
Source: IFC
6
Fleisig, 2006
7
http://www.ifc.org/wps/wcm/connect/fbef87804c2ab1dda285eaf12db12449/Registry+survey+report.pdf?MOD=AJPERES