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The Case for Collateral Law Reform in Southeast Europe and Eurasia - Unblocking the Flow of Credit
The lack of sufficient collateral is an acknowledged constraint to lending to SMEs and households in the region served by the Partners for Financial Stability Program (PFS).
In Emerging Europe and across other developing regions, when businesses apply for loans the most common reason for rejection is the firm’s lack of or insufficient value of real estate to serve as collateral. Many entrepreneurs do not even bother to apply for loans because they know that they will be unable to meet the lender’s collateral requirements.
The result is that businesses Emerging Europe get little of the potential benefits of financing from the assets they do own. In these countries, a mix of reforms aimed at easing the use of collateral is vital to unlock businesses’ “dead capital” and increase their access to the financing they need to raise productivity and expand operations.
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