Keeping it real: SME financing, secured transactions and risk appetite

It is a well-known fact that bankers in developing economies are reluctant to lend to small businesses. The chapter argues that, leaving vendor/lessor credit aside, and ignoring the top end of the SME range, a bank’s willingness to grant an SME a credit facility in fact depends to a large extent on the SME owner having “thirty years of bricks and mortar and two cars in the driveway” – in other words, using immovable property as collateral for the loan. If personal guarantees and security rights over residential property are an important factor in access to credit for SMEs, it is important to provide a framework for promoting the titling and land recordation of residential property in developing countries, and an accompanying immovable property mortgage regime. Furthermore, land recordation systems also play a role at a secondary tier level – when rights over immovable property are bundled into a security issued by a rights holder and sold onto the market – and the chapter further emphasises the importance for developing agencies to invest in and facilitate land recordation reform.