The Impact of Secured Transactions Reform on Access to Capital for Small and Medium Enterprises in Colombia

While Colombia has made a lot of progress in recent years in increasing access to finance for SMEs, entrepreneurs still report that access to finance is among the largest constraints to operating their businesses. According to the 2010 World Bank Enterprise Surveys, over 41% of firms in Colombia identified access to finance as a major constraint to operating their businesses, which is roughly ten percentage points higher than the average for the Latin America and Caribbean region. At the same time, prior to 2013, Colombia had no legal framework to govern the use of moveable assets as collateral, which restricted the ability of SMEs to take out loans secured with movable collateral. The Colombian government, with support from the International Finance Corporation (IFC), an international development organization that focuses exclusively on the private sector, is introducing a new Secured Transactions Reform, which will provide a legal framework for the use and enforcement of movable collateral. The hope is that, by reducing the risk that banks face in accepting movable property as collateral, the reform will allow SMEs to use vehicles, industrial equipment, inventory, and other movable assets as collateral for their loans.