Peru - How problems in the framework for secured transactions limit access to credit
Schiff, Maurice | Montenegro, Claudio E.
This report draws on two weeks of intensive interviews with business people, farm operators, and operators of financial institutions in Peru to describe how problems in the existing framework for secured transactions restrict the use of collateral and prevent Peruvian farmers, "acopiadores," agro-processors, manufacturers, intermediary traders, equipment dealers, nongovernmental organization lenders, and other actors from engaging in profitable transactions. It discusses the legal and institutional roots underlying the lack of financing for movable property, such as problems in creating, perfecting, and enforcing security interests; the willingness of foreign lenders to lend to Peru; high bank intermediation margins; the difficulty of collecting against real estate mortgages; the lack of banker interest in making small loans; excessively restrictive bank regulations; insufficient domestic savings; and collateral risk. Alternative explanations explore macroeconomic risk tied to the country's fiscal performance, export competitiveness, and ability to contract imports. Moreover, the economic consequences resulting from this weakness in the secured transactions framework are examined. The report concludes by discussing the legal, regulatory, and institutional options available to address these problems, and the several strategies government, consumers, and business people can consider.
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