The industry's view on credit reporting, collateral registration and enforcement, and insolvency arrangements, and on how improvements in each could widen access to credit, particularly for small and medium-sized enterprises.
Purpose
This paper sets out the view of member banks on the legal and institutional arrangements that determine how readily banks can extend credit, on what terms and to whom. It focuses on four areas: credit reporting, collateral registration, the enforcement of security and insolvency. It concludes with recommendations offered as a basis for dialogue with the Central Bank of The Gambia, government and the justice sector.
Why credit infrastructure matters
A decision to lend rests on two questions: how likely is the borrower to repay, and what can be recovered if they do not? Credit infrastructure is the set of systems that help lenders answer those questions. Where information about borrowers is incomplete, where security interests are uncertain or where recovery is slow and unpredictable, lenders must compensate by charging more, asking for more collateral, lending for shorter periods or declining to lend at all.
These effects fall hardest on small and medium-sized enterprises (SMEs), new businesses and individuals without long banking histories or land to pledge. Improving credit infrastructure is therefore one of the most direct ways to widen access to finance without weakening prudential standards.
Key principles
Credit reporting
Complete, accurate and shared. A credit reporting system is most useful when it covers all regulated lenders, records both positive and negative repayment information, is updated promptly and allows borrowers to see and correct their own records. Positive information is especially valuable for borrowers who repay reliably but lack collateral, because it allows them to build a track record that lenders can recognise.
Fair to borrowers. Credit data should be used only for legitimate purposes, held securely and retained for defined periods. Borrowers should have a simple route to dispute inaccurate entries and have them corrected.
Collateral registration
Movable assets as security. Many SMEs hold their value in equipment, vehicles, inventory and receivables rather than land. A reliable, searchable register of security interests in movable property allows lenders to accept such assets as collateral with confidence about priority, making credit available to borrowers who would otherwise be excluded.
Certainty about land and title. Where land is offered as security, clear title records, efficient registration and transparent procedures for recording charges reduce the time and cost of secured lending.
Enforcement
Predictable recovery. Lenders do not seek to enforce security as a first resort. However, the knowledge that enforcement is available, proportionate and reasonably timely is what gives collateral its value. Prolonged or uncertain proceedings raise the cost of credit for all borrowers, including those who repay on time.
Balance and fairness. Enforcement processes should protect borrowers from abuse, provide for notice and an opportunity to remedy default, and encourage negotiated restructuring where a viable business can be preserved.
Insolvency
Rescue where possible, orderly exit where not. A modern insolvency framework provides mechanisms to restructure viable businesses and to wind up non-viable ones efficiently, with a clear ranking of creditors. This reduces losses, preserves employment where businesses can be saved, and gives lenders the confidence to support enterprises through difficult periods.
SME lending
Information and risk-sharing. Beyond legal infrastructure, SME lending benefits from better financial records among borrowers, business development support and well-designed partial credit guarantee arrangements that share risk without removing the lender's incentive to assess credit carefully.
Recommendations
The industry offers the following recommendations as a basis for continued engagement with policymakers:
- Extend the coverage of credit reporting to all regulated lenders and, where appropriate, to other providers of credit, and encourage the reporting of positive as well as negative information.
- Strengthen data-quality standards for credit reporting, including common identifiers and timely updating, together with clear procedures for borrowers to access and correct their records.
- Ensure that the registration of security interests in movable property is simple, accessible, low in cost and searchable, and that priority rules are clear.
- Improve the speed and certainty of land registration and the recording of charges over land.
- Review procedures for the enforcement of security to reduce avoidable delay, while preserving appropriate protections for borrowers.
- Consider specialised procedures or case-management arrangements for commercial, credit and insolvency matters.
- Strengthen restructuring tools within the insolvency framework so that viable businesses can be rescued.
- Explore risk-sharing mechanisms for SME lending, designed with clear eligibility rules and sound governance.
The industry's role
Member banks recognise their own responsibilities in improving access to credit. These include reporting accurate data promptly, assessing SME applications on their merits, explaining credit decisions to applicants, offering financial-management guidance to small business customers and treating borrowers in financial difficulty fairly and consistently.
Next steps
The Legal & Regulatory Affairs Committee, working with other committees as needed, will continue to coordinate the industry's engagement on these matters. The Association welcomes comments from member banks, policymakers and other stakeholders. This paper reflects the Association's position at the date of publication.