Mexico s Personal Property Collateral Registry Jan R. Boker General Director of National Commercial Regulation Ministry of Economy November, 2012
Diagnose: SME s have limited acces to credit SME s in Mexico are owners mostly of personal property such as: machinery and equipment, motor vehicles, account receivables, inventory, livestock and crops. Compared to real state, personal property is not well accepted as collateral. Thus an efficient Secured Transactions System is needed to increase SME s access to credit in fair and competitive conditions. COMMERCIAL BANKS ACCEPTANCE OF PERSONAL PROPERTY AS COLLATERAL* Size of Enterprises % of Loans Micro Enterprises Small Enterprises Medium Enterprises 1.59% 2.76% 3.12% *Banking and Securities National Commission, 2010.
Response: An efficient Secured Transactions System Efficient secured transactions system Law Simple and Clear Registry Effective and cheap Enforcement Prompt Reduces credit risk Increase of access to credit in better financial conditions Success factors: Clear legal framework and access to information. Reduction of officers discretion. Taking advantage of latest IT technologies. Acceptance of multiple type of collaterals on personal property as long as they are registered in a single data base. Prompt and efficient enforcement procedures. Awareness of the secured transactions system by financial institutions, registry offices, specialized courts, financial regulatory authorities, lawyers, insolvency and bankruptcy administrators, etc. Expected results: Access to credit tends to increase, mostly in favor of SME s. Financial costs of loans are significantly reduced. Credit rights are strengthened. Resources of the Judicial branch are used efficiently. Local and foreign investments are promoted. Financial system stability is subscribed. Economic growth is promoted.
Legal reforms made to the Secured Transactions System Before reforms: Creditors expressed their inconvenience for supplying credit receiving personal property as collateral, due to legal handicaps. Moreover, because of distrust. Likewise, enforcement processes were avoided. Years 2000 and 2003: Pledge and guarantee trust are introduced to the legal framework, allowing debtors to stay in possession of the secured assets. LAW Simple and Clear Years 2000 and 2003: Judicial and extrajudicial enforcement procedures are introduced Enforcement Prompt REGISTRY Year 2009 Ministry of Economy was ordered to build and design a Movable Property Collateral Registry: simple, reliable and non expensive. Effective and cheap
SME s are the target beneficiary of the Reforms The main purposes of the 2000, 2003 and 2009 legal reforms were the increase of access to credit and the improvement of financial conditions, mainly in favor of the SME s. Big Enterprises Medium Enterprises Small Enterprises Micro Enterprises Entrepreneurs 101-250 Employees; >25 Million USD; <4% of EE 31-100 Employees; 10-25 Million USD; 1% of EE; 17% of Employment; 22% GDP 11-30 Employees;.4-10 Million USD; 3% of EE; 15% Employment; 14% GDP <10 Employess; <.4 Million USD; 91% of EE; 44% Employment; 15% GDP In process of creating new businesses SME s Represent 96% of Mexican business Generate 76% of Employment Produce arround 51% of the GDP The total amount of Economic Entities (EE) in Mexico is around 4.4 million
Pillar 1: The Registry Concept: 24/7 online registry where all security interests and liens over personal property are registered by lenders to gain publicity and legal effects before third parties. Available via www.rug.gob.mx. Started operations on October 2010. Legal Basis: On August 2009, the Commercial Code was reformed to incorporate an special section within the Public Registry of Commerce, for registering security interests and liens guaranteed by Personal Property. The Ministry of Economy was given one year to implement it. The registry was designed according to the best available practices and the existing substantive legal framework. The new applicable Regulations entered into force on October 2010.
Challenges faced during its implementation Legal and Operational Challenges Designing the respective Regulations. Reception of stakeholders input. Definition of types of security interests to be registered: Pledges and similar security interests where grantor remains in possession of the secured assets; retention rights and special creditor s privileges set forth in the Law. Avoidance of double registry in Special Registries (Patents, Trademarks, Copyright, Aircrafts, Ships and Mineria Registries). Resistance to change from local registry offices. Information Technology (IT) Challenges Translation of legal requirements into IT requirements. Maintenance of maximum security requirements (Electronic Signature and Time Stamp). Legacy data conversion. Matching up over 260 different registration offices into a single national database for all personal and movable property collaterals.
Who are the users and what can they do? Transactions Creation of a User s Account Association of it with a Lender (ie creation of a Lender s Account) Definition of roles within the Account Users Any individual A Lenders representative Preliminary Notice Lenders, Notaries-at-law, Administrative Authorities and Judges Registration of a security interest, lien or attachment Idem Modification of the registration Idem Rectification of a Mistake Idem Assignment of the Security Interest Idem Increase or Decrease of Registration Term Idem Cancelation of the registration Idem Searches Request for Certification Any individual
Benefits: Before/After Aspect Before October 2010 Procedure Paper based Subject to approval by state officials Over 269 different registration offices Registrations and searches are immediate and online 1 single national database for all security interets, liens and attachments Transaction costs are substantially eliminated Fees Time 32 different rates, depending on the State Fees based on a percentage of the amount of the loan (avg. 2%) Average registration time: over 17 days It s free! No charge can be transfered to the borrower It takes only a few minutes Legal certainty is obtained on the spot
Results: October 2010 October 2012 (1/4) Total amount of online transactions with legal effects: 171,212 Total amount of registrations: 90,767 The number of registrations has increased almost 4 times Note the latest increase! 9,000 8,000 7,000 6,000 5,000 4,000 3,000 Registrations RPC (2009-2010) Registrations RUG 2,000 1,000 - feb-10 mar-10 abr-10 may-10 jun-10 jul-10 ago-10 sep-10 oct-10 nov-10 dic-10 ene-11 feb-11 mar-11 abr-11 may-11 jun-11 jul-11 ago-11 sep-11 oct-11 nov-11 dic-11 ene-12 feb-12 mar-12 abr-12 may-12 jun-12 jul-12 ago-12 sep-12
Results: October 2010 Oct 2012 (2/4) Most registrations are made by Lenders Fees formerly charged by intermediaries are not transferred to Borrowers Notaries-at-law, Administrative Authorities and Judges 13% Registration by type of registrant Mainly Non-Banks Lenders, 87%
Results: October 2010 Oct 2012 (3/4) Most registrations are related to loans under 1 US$ Million The credit risk of loans granted in favor of SMEs is being lowered Registrations by secured amount 4% Registrations for over $1M USD Registrations for under $1M USD 96%
Results: October 2010 Oct 2012 (4/4) Registrations related to Motor Vehicles and Machinery & Equipment are increasing The registry is stretching its original boundaries to new lending practices Shares, Bonds, Options and Futures 1% Motor Vehicles 27% Registrations by type of asset Others 6% Consumer Products 1% Rights and account receivables 3% Livestock 3% Inventory 1% Machinery and Equipment 20% Agricultural Products 38%
Next steps 1. IT improvements are constantly implemented to enhance the operation of the Registry. 2. New features in the Registry have been developed, such as the massive operations to avoid one-to-one registrations. 3. Financial authorities are preparing a legal paper by mean of which credit institutions will be able to reduce their financial reserves and capital requirements if their collaterals are registered within the RUG. 4. The Ministry of Economy is working into the agreements with both, Federal and Local Judicial Branches, in order to establish the direct usage of the Registry by Judges during enforcements and any other judicial procedures related to movable and personal property.
Mexico s Personal Property Collateral Registry Jan R. Boker General Director of National Commercial Regulation Ministry of Economy November, 2012