Working Paper Series: Special Edition of 2016 to 2018 Interns

Secured Transactions Framework From Section 5, it is observed that the second largest source of working capital and fixed capital financing was credit from suppliers. This paper makes a strong assumption that firms in the region do some level of trading with each other, and therefore one firm’s account receivable would be another trading partner’s accounts payable. Based on this assumption, recommendation is made for the establishment of a secured transaction framework. This would enable SMEs the ability to pledge movable collateral to obtain capital for investment and growth. This would also allow for non-traditional sources of financing such as factoring and leasing to be used in SME financing. Factoring opens up an opportunity for small and medium firms to access capital financing by selling their short-term assets (accounts receivables and inventories) to a factor who buys it usually for a fee. Additionally, they also provide complementary services such as assessing creditworthiness of sellers whose accounts factors will purchase and provide collection services. The credit services done on the part of the factor also provides opportunities for information sharing, as factors would have to collect information on sellers through a combination of their own databases as well as public and private data (Klapper, 2005). Findings by Klapper (2005) also suggested that in countries with better information sharing there was greater factoring which lends further support for the importance of establishing a regional credit bureau. It should be noted that in 2013, the government of Jamaica passed the Security Interests in Personal Property Act and established a collateral registry. The underlying framework for this act was based on the principles of the OAS Model Inter-American Law on Secured Transactions and Regulatory Regulations. This legislation would allow for a wide range of collateral items to be used such as inventory and accounts receivable thus improving the overall access to credit by MSMEs (Organisation of American States, 2015). It is recommended that consideration be given to creating a secured transaction framework for the ECCU. This would allow borrowers to pledge moveable property for collateral purposes and create the legal environment to support factoring, leasing and non-traditional forms of financing or lending arrangements.

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