Unleashing capital

Unleashing capital

The law allowing the establishment of a national collateral registry and for banks to use movable and non-tangible assets to back loans is, on the face of it, an important development that should unlock capital, entice people into the formal system, and unleash economic activity.

But as a conversation between bankers and business people hosted by this newspaper last week illustrated, there is still much to be talked about and refined if the scheme is to deliver on its perceived potential. For while the registry has been open, banks are yet to begin to lend, in any fundamental way, against this new class of collateral, such as intellectual property, crops, or, maybe, livestock.

But the discussion, we feel, should not be limited to the specific matter, but a broader debate on, and committed action towards, unlocking what Hernando de Soto called the society's 'dormant capital'.

no mechanism evolved

First, unlike the market for motor vehicles, there is no mechanism as yet evolved, at least none with which bankers are comfortable, through which lenders can liquidate assets and recoup debts that go bad. Nor is there, as Jacqueline Sharp, the CEO of Scotiabank Jamaica, pointed out, a framework for valuation of intellectual property. Then there is the issue of how to provide for this new class of assets, on which institutions are awaiting guidance from the central bank.

The identified issues are, of course, challenges, but ought not to be permanent barriers to ultimate success for the law and its intent. Nor should it require a reinvention of the wheel, although some re-engineering may be necessary.

Indeed, for decades, credit unions have, though not at the scale anticipated, used some of these types of assets to support the loans of their members. Further, development banks and agriculture ministries have, for ages, secured debt by crop lien schemes. Banks are also adept at the art of bolstering underlying collateral with insurance.

The point is that one should not expect a perfect take-off in this process. There will be heavy landings, crashes even, but it is not beyond the ingenuity of the Jamaican stakeholders to, over time, fashion a sustainable arrangement.

intellectual property

In any event, this is not the only market in which non-hard assets will be employed as collateral. The valuation and use of intellectual property, for instance, is well developed in many market economies. Those techniques can be acquired without the need for a struggle up the learning curve.

Even as the authorities engage this project, there are two others, of which they talk a lot, that require tackling with greater urgency.

For decades, Jamaican administrations have promised to deliver titles to legitimate owners of land who have no formal proof of their ownership, thus restricting the employment of this asset in the formal economic system. The latest iteration of this land-titling project is called LAMP. A better acronym might be SLOW - the word bearing its meaning. Accelerating this process will add to the suite of solutions to the problem of collateral.

Additionally, somebody has to take on the role as champion against red tape and bureaucracy - relentlessly slashing away at impediments to doing business - for people with little capital, those just entering the formal system, or large corporations with big capital.