Washington, DCNovember 3, 2009

Presentation

Tanzania Secured Finance Reform ProjectBizCLIR Technical Assistance

Agenda

Introduction Credit Risk and Reform A Modern Secured Finance System New Products Comprehensive Institutional Reform Project Status Engaging with Stakeholders Challenges / Opportunities

Introduction

In 2007, USAID conducted an assessment of Tanzania’s business environment using their BizCLIR methodology Doing Business is a good proxy, though sometimes it does not tell the whole

story

One of the recommendations was the need for a secured finance reform to enable greater lending on moveable property The current environment relies on multiple paper-based registries Multiple pieces of legislation regulating priorities and other aspects And lacks effective enforcement in case of default

USAID partnered with the Bank of Tanzania in September of last year to undertake this reform

Borrowers Elements of Credit

Risk Analysis

1. Credit History

2. Financials/

Cash Flow

3. Collateral

(Immoveable)

4. Collateral

(Moveable)

Credit Risk and Reform

• No effective credit bureaus• Due diligence expensive

• No Audited Financials• No Cash Flow History

• Paper based system• Expensive to search/register• Few own land

• Paper based system• Expensive to search/register• Collection/Fraud Risk

Barriers to Lending Financial

Institutions

Why is secured finance reform so important?

Most credit transactions require collateral to secure the loan, especially when other risk mitigation is unsatisfactory (credit history / financials)

Most individuals or businesses do not own land

The ability to utilize moveable property for collateral can help to expand access to credit to a much broader population

Supporting Laws & RegulationsThe Web-Enabled Registry

A Modern Secured Finance System

Secured finance reform provides the legal and institutional infrastructure which reduces the risk for banks to lend

Search Register Establishes priority Reduces fraud

Current Status: Web-enabled registry customized for Tanzania.

Supporting Laws & RegulationsThe Web-Enabled Registry

A Modern Secured Finance System

Secured finance reform provides the legal and institutional infrastructure which reduces the risk for banks to lend

Establish the registry as a legal entity (or part of an existing one)

Make the system predictable and easy to use (simple and priorities)

Ensure timely transfer of collateral to the lender in case of default

Current Status: Draft law and commentary submitted to the Technical Committee at the Bank of Tanzania.

Borrowers Elements of Credit

Risk Analysis

1. Credit History

2. Financials/

Cash Flow

3. Collateral

(Immoveable)

4. Collateral

(Moveable)

Removing a key barrier to lending

• No effective credit bureaus• Due diligence expensive

• No Audited Financials• No Cash Flow History

• Paper based system• Expensive to search/register• Few own land

• Paper based system• Expensive to search/register• Collection/Fraud Risk

Barriers to Lending Financial

Institutions

Finance begins to flow!

New Products

With the reform in place, banks will innovate to take advantage of the enhanced risk mitigation. In fact, in countries with a modern secured finance system, lending on moveable property far outweighs lending on land!

A few new products that should take off: Inventory Lending Warehouse Receipts Small Loans secured by Household Goods Livestock Loans Crop Loans (Agricultural Insurance mitigates Risk)

Comprehensive Institutional Reform

FinancialInstitutions

Bank S

ophistication (Products, T

echnology, Access to F

oreign Capital, H

uman C

apital)

High

Low

Com

petition (dom

estic and foreign) w

ill drive innovation

Bank S

ophistication (Products, T

echnology, Access to F

oreign Capital, H

uman C

apital)

High

Low

Com

petition (dom

estic and foreign) w

ill drive innovation

Customers

Credit W

orthiness

High

Low

Credit W

orthiness

High

Low

Legal Barriers

Property L

aw

Contract La

w

Bankruptcy La

w

Secured F

inance Law

Product S

pecific Laws (e.g. M

ortgage, L

easing, etc.)

Privacy Law

/ Other Inform

ation Sharing

Legal Barriers

Property L

aw

Contract La

w

Bankruptcy La

w

Secured F

inance Law

Product S

pecific Laws (e.g. M

ortgage, L

easing, etc.)

Privacy Law

/ Other Inform

ation Sharing

Property L

aw

Contract La

w

Bankruptcy La

w

Secured F

inance Law

Product S

pecific Laws (e.g. M

ortgage, L

easing, etc.)

Privacy Law

/ Other Inform

ation Sharing

Institutional Barriers (Fin.)

Credit B

ureau (P

rivate and P

ublic)

Collateral R

egistry

Central B

ank

Other B

ank Reg

ulators

Share

d Service P

roviders (Appraisers, R

epo. Services, etc.)

Non-b

ank financial institutions (e.g. insurers, microfinanciers, capital m

kts)

Institutional Barriers (Fin.)

Credit B

ureau (P

rivate and P

ublic)

Collateral R

egistry

Central B

ank

Other B

ank Reg

ulators

Share

d Service P

roviders (Appraisers, R

epo. Services, etc.)

Non-b

ank financial institutions (e.g. insurers, microfinanciers, capital m

kts)

Credit B

ureau (P

rivate and P

ublic)

Collateral R

egistry

Central B

ank

Other B

ank Reg

ulators

Share

d Service P

roviders (Appraisers, R

epo. Services, etc.)

Non-b

ank financial institutions (e.g. insurers, microfinanciers, capital m

kts)

Institutional Barriers (Non-Fin.)

Business R

egistry

Land R

egistry

Motor V

ehicle Registry

Com

mercial C

ourts

Agency o

verseeing N

ational Identification

Technolo

gy Service P

roviders

Institutional Barriers (Non-Fin.)

Business R

egistry

Land R

egistry

Motor V

ehicle Registry

Com

mercial C

ourts

Agency o

verseeing N

ational Identification

Technolo

gy Service P

roviders

Business R

egistry

Land R

egistry

Motor V

ehicle Registry

Com

mercial C

ourts

Agency o

verseeing N

ational Identification

Technolo

gy Service P

roviders

Individual Barriers

No A

udited Fina

ncials

No B

usiness Plan

No P

roof of Identity

No Insurance

No A

cceptable Collateral

No C

redit History

Individual Barriers

No A

udited Fina

ncials

No B

usiness Plan

No P

roof of Identity

No Insurance

No A

cceptable Collateral

No C

redit History

No A

udited Fina

ncials

No B

usiness Plan

No P

roof of Identity

No Insurance

No A

cceptable Collateral

No C

redit History

Loan Pipeline: With legal, institutional, and individual barriers in place, banks can only lend to the most credit worthy customers, though many others remain credit worthy.

Project Status

Quarter 1

Fact Finding

Registry Build & Training DevelopmentLaw Review

LegislativeProcess & TrainingDebrief

Quarter 2

Quarter 3

Quarter 4

Quarter 5

Quarter 6

Kick-off & Drafting

We are here

Engaging with Stakeholders

POTENTIAL PARTNERS

Stakeholders whosupport reforms but are

less influential

OPPONENTS

Stakeholders whooppose reforms buthave low influence

ADVERSARIES

Stakeholders whooppose reforms and are

influential

ALLIES

Stakeholders who arestrong reform supporters and

have high influence

Degreeof

Support

Level of Influence

HighSupport

LowSupport

Low High

POTENTIAL PARTNERS

Stakeholders whosupport reforms but are

less influential

OPPONENTS

Stakeholders whooppose reforms buthave low influence

ADVERSARIES

Stakeholders whooppose reforms and are

influential

ALLIES

Stakeholders who arestrong reform supporters and

have high influence

Degreeof

Support

Level of Influence

HighSupport

LowSupport

Low High

Challenges / Opportunities

Upcoming Challenges:• Passing Legislation• Zanzibar Program• National Identification• Promoting Uptake

Opportunities:• Further Registry Consolidation• Providing Incentives for Uptake• Regional Replication