Samir Ghawi, The Jordan Times

AMMAN — The legal framework restricts the ability of Jordanian small- and medium-sized enterprises (SMEs) to borrow against movable assets and for creditors to protect their rights, the founder and managing partner of JC Law told a conference this week.

Speaking at the “Expanding SMEs Access to Finance through Secured Transactions” conference, Lana Salameh said the newly enacted law did not add anything to modernise a legal framework that is outdated.

In her presentation, titled “Challenges in Developing an Effective Secured Transactions Systems in MENA Countries — Jordan as an example”, the lawyer also mentioned weak enforcement mechanisms among other key constraints to effective secured lending practices in Jordan.

“Weak enforcement mechanisms delay and increase the cost of repossession. Out of court repossession procedures are not possible,” she said.

She added that the priority scheme for creditors is unclear, noting that this constraint increases uncertainty and raises risks to creditors, thus reducing their willingness to lend against movable property.

According to Salameh, the absence of uniformed, centralised collateral agency limits transparency and increases uncertainty related to rights of creditors and their priorities when lending against movable collateral.

The Legislative Bureau, the Ministry of Industry and Trade, and the Ministry of Planning and International Cooperation have agreed with the International Finance Corporation (IFC) in March 2013 to conduct further consultations on this issue.

“The IFC plan to help the Ministry [of Industry and Trade] draft a law on secured transactions and develop a national registry for companies to list assets. This will help smaller businesses which often lack traditional forms of collateral like land to secure financing from banks and other financial institutions, “ the IFC said in a press release.

Alejandro Alvarez de la Campa, global product leader for IFC’s Secured Transactions and Collateral Registeries listed in his presentation bank accounts, account receivables, inventory and raw materials, intellectual property rights, industrial and agricultural equipment, durable consumer goods, agricultural products (crops, livestock, fish farm), and vehicles among movable property that can be used as collateral.

De La Campa stressed the importance of broadening the scope of secured transactions in the Middle East and North Africa (MENA) region by allowing all types of assets including future assets, proceeds, and all types of contractual agreements to be part of the system.

Moreover, he urged modernising collateral registries: Notice system, web-based, centralised, cost-effective…etc.

He emphasised the need to improve enforcement mechanism in order to execute security interests in movable collateral by introducing out of court enforcement, fast-track judicial processes in court and more flexibility in the disposition of the assets (private sector).

“Awareness about secured transactions is key,” De La Campa concluded. “With need for training to financial institutions on asset-based financing.”

Youssef Habesch, IFC’s representative in Palestine and responsible for IFC’s strategy, investment and advisory programmes, said in the press release: “Our aim here is to protect lenders and borrowers rights by creating a strong legal and institutional infrastructure.”

“Jordan is one of the countries where IFC has a long-track record in supporting the reforms aiming at improving access to finance for micro-, small- and medium-sized enterprises,” he added.