How can reform of secured transactions laws in the region be operationalized and sustained? 12 November

SMEs in Thailand 2 SME in Thailand Accounts for 2.8 million entities Approximately 80% of employment Contributes to approximately 40% of GDP

3 FinancingCollateral 1. Inventory and equipment acquisition financing  Supply chain financing Raw materials Machineries 2. Inventory and receivable revolving loan financing  Working capital financing Raw materials Machineries 3. Factoring (discount factoring, collection factoring, maturity factoring) Receivables 4. SecuritizationReceivables 5. Term-loan financingMovable assets 6. Credit secured by a transfer of title  Sale and lease-back (Financial lease) Intellectual Property United Nations Commission on International Trade Law (UNCITRAL) and IFC support to establish 6 secured transaction laws to widen SMEs’ access to finance

“Getting Credit” is one of the 10 main criteria in ranking in Ease of Doing Business. Thailand ranks 49th of 189 economies Ease of Doing Business 97th on Ease of Getting Credit (the lowest ranking among all 10 criteria) Cr. Doing Business 2016, Measuring Regulatory Quality and Efficiency, A World Bank Group Flagship Report 4

The 10 criteria in ranking the Ease of Doing Business in the World Bank’s “Doing Business Report” include : Start a Business Dealing with Construction Permit Getting Electricity Registering Property Getting Credit Protecting Minority Investors Paying Taxes Trading Across Boarders Enforcing Contracts Resolving Insolvency 5

The problem for Thailand was the limitation under the Thai laws that have only 2 methods of assigning preferential right over assets for collateral : Mortgages - Land, Building, Factory, Machineries and Equipment Pledge of movable assets that can be properly registered such as receivables, inventories. 6

However, the current practices of pledges of movable assets is not fully secured (Preferential right) at present. Banks can be the challenge or the "pledged" can be grabbed by parties. In addition, there is also difficulty in the process of realizing these assets, as it take a long time to go through the court procedure and to sell through auction by official receiver. 7

Current law "Business" cannot be used as collateral. Assets are taken as collateral piece by piece and selling piece by piece. The value of collateral should be higher if it can be handled collectively as a "Business" 8

Thailand realizes that this limitation has caused difficulty in the ability of SMEs to access bank financing. We try to solve the problem by improving and amending the existing laws on mortgage and pledge. However, they have not been able to solve the problem. 9

The new secured transaction law which has been brought into consideration since 1997 has been approved in The related rules and regulations are in the process of being drafted and issued. This law will be in effect on July 2,

"Assets that have Economic Values" can be used as collateral 11

12 "Assets that have Economic Values" can be used as collateral

13 - Cash Deposits - Inventory - Raw Materials - All Types of Machineries - Rice/ Agricultural Products - Solar Cell Panels - Aircrafts - Trucks - Buses - Cars - Motor cycles - Ships and Fishing Boats - Computers - Dental Chairs and equipment - Copier Machines - Fishing Nets - Food Stalls - Intellectual Property - Trademarks - BUSINESS "Assets that have Economic Values" can be used as collateral

The giver of assets as collateral and the taker of those assets shall agree between themselves what assets can be given and taken as collateral. 14

The new law focuses on assets to secure debts in the normal system (not in the unorganized black market) The taker of secured assets must be the financial institutions. 15

The agreement must be in writing and details of the agreement and secured assets must be registered with the registrar. 16

Registration can be done: - throughout the country, - in a fashion that is convenient, fast and economical, -where registered information can be easily checked and within a short period, - where information must be in real time, -where information must be linked and connected to other asset registration system 17

Amongst secured lenders under this law 18 “First come/ register, First right” rule applies.

If there is a dispute (borrower does not agree to handover the assets to the lender) after the borrower defaults, there are only 2 courts to deal with the matter. The ruling of the appeal court is final. 19

Conclusion New laws as a new alternative. Bid progress for Thailand The existing laws on mortgage and pledge can still be used More assets, e.g. the "business" itself, can be used as collateral More flexibility: Agreed between the lender and the borrower First Register, First Right over the assets The assets can still be used by the borrowers for their business (Floating) Agreement between the 2 parties Do not have to go to court (if no dispute) Do not have to go to official receiver in doing an auction Faster court procedure Conclusion 20

More SMEs can access financing Reducing borrowing from "Black Market" Reducing risk for lenders and more potential business as more choices of collateral and faster time in realizing collateral Better for the country : potential for economic growth, more investment, better life Address the major negative issue in the World Bank’ s Ease of Doing Business ranking competitiveness for Thailand Expected Results 21 Expected Results

How can the reform of Secured Transactions Laws be Operational and Sustained ? Benefits for all parties Strong support from both government and private sector Protect all parties who that are prudent and uncorrupt Standardize practices nationwide Standardize documentations Transparent, Fast, Low Cost Good and reliable registration system Good and secured IT system 22

Thank you 23