Clasificación de Perfiles según modelo de ejercicio profesional El despacho profesional

Capital markets can play an important role in development finance. They can expand competition within banking systems by allowing banks to issue loans and then move the loans off their balance sheets by selling them to outside

investors—who bundle loans and use them as collateral for bonds or commer- cial paper in the process known as securitization. Capital markets can finance other intermediaries that compete with banks—both nonbank lenders and firms that sell on credit. And they can support firms in issuing stocks and bonds— securitized and ordinary—by giving them direct access to funds from the pub- lic. Modern systems of secured transactions form the basis for these financial operations by setting out the fundamental legal framework for securitization.

Under obsolete frameworks for secured transactions capital markets can undertake securitization and asset-based lending only under a stand-alone secu- ritization law.4 _{These laws require that investors use a riskier and more expen-} sive system of securitization by transfer, rather than taking a security interest in a portfolio still in the hands of the original creditor. Moreover, adding one more law to the already fragmented traditional approach does not offer the reductions in risk and cost of a modern system of secured transactions, which resolves fundamental problems in priority, collection, and insulation from bank- ruptcy and transfer of accounts. These advances in securitization are key, par- ticularly for encouraging nonbank lenders such as microfinance institutions, companies selling equipment on credit, and even companies extending normal 30- to 90-day credit to their clients. Under a reformed legal framework such nonbank lenders can use portfolios of loans and accounts receivable as collateral for commercial paper and bonds floated in capital markets.

While capital markets support equity finance, as a practical matter equity markets cannot substitute for legal systems that permit debt finance.5 _Equity finance plays a smaller role than debt finance. And equity markets require stan- dards of disclosure and protection of minority shareholders far more difficult to satisfy than even the defective lending standards in place in most countries with unreformed systems of secured transactions. Even in the United States, where there has been enormous investment in the legal and regulatory infra- structure for capital markets, new equity issues represent a small fraction of total investment. In recent years new U.S. stock issues amounted to only 10 percent of new investment, while new borrowing amounted to about 40 percent.8 SHORING UP STATE LOAN AND GUARANTEE PROGRAMS

Following years of state-supported lending and guarantee programs that failed because of nonperforming loans, multilateral institutions have been withdraw- ing support and encouraging governments to privatize these state credit pro-

grams. But whether privatized or operating like private lenders, the programs can succeed only if the legal framework for debt collection is improved.

Without a change in this legal framework, these publicly subsidized pro- grams simply transfer to governments the risks that the private sector is unwill- ing to take in the present legal environment. Since governments typically have no advantage in managing these risks, the risks remain high, with the conse- quences showing up as losses to the state lenders.

Many state lenders remain in operation because they make loans deemed socially necessary to important productive sectors of the economy. But even while they continue to operate, improving the legal framework for secured lending can support the objectives of liquidation or privatization in two ways. First, it would permit the private sector to make many of these socially neces- sary loans, allowing governments to reduce their involvement. Second, it would enable the state lenders to achieve their objectives with a lower loan loss rate. ALLOWING THE GROWTH OF FINANCIAL LEASING

In otherwise unreformed legal regimes financial leasing offers an important advantage as a lending device by reducing collection costs and shortening the time required for selling collateral.7 _{Using a financial lease often allows the} lessor (lender) to skip the judicial process for enforcement. Since the lessor owns the leasehold collateral, the lessor can sell the collateral without the mandated judicially administered sale.

Still, financial leasing typically cannot avoid the repossession problems arising from an obsolete enforcement process. Some laws permit a lessor to recover leased property when it is on public property and its repossession will not breach the peace—for example, cars, trucks, and buses parked on public streets. But when leasehold collateral is in the possession of the lessee (debtor), the lessor still must first obtain a court order for repossession. Moreover, some sophisticated jurisdictions (such as Colombia) recognize leasing as a “simulated transaction” in which the retention of title is a device to avoid the law’s provi- sions for recovery of the collateral—and require a court order for repossession even when it would not breach the peace. Getting a court order takes a long time, lowering the chance of repossessing the collateral and realizing much from its sale.

So leasing works best for cars, trucks, and buses. It cannot be used for inventories of untitled goods, accounts receivable, or chattel paper; nor can a

lease secure a credit line. But cars, trucks, and buses amount to less than 15 percent of the movable capital stock in most countries, limiting the extent of leasing. Moreover, tax difficulties often arise because the lessee must pay taxes when the lessor purchases the leasehold property and again when the property is transferred to the lessee. Leasing therefore tends to focus on new goods, amounting to only about 1.5 percent of the movable capital stock.

Thus while financial leasing offers clear benefits even in an unreformed framework for security interests, a reform that addresses the most severe faults of that framework would strengthen financial leasing and increase its economic impact. In particular, a reformed legal system would permit the bundling of leases into portfolios that can serve as collateral for refinancing loans from other lenders. Such private and public securitizations would provide financing that would allow lessors (such as leasing companies) to expand their operations. SUPPORTING JUDICIAL REFORM

Judicial reform has many important public policy justifications. Further justi- fication might appear to be the long, judicially administered procedures for debt collection that limit access to credit because they limit the economic value of collateral.

But modern systems have speeded debt collection largely by removing it from the courts rather than by trying to reform them. Repossession and sale of collateral occur largely without judicial intervention. Instead, they are undertaken under the control of the creditor, which is subject to penalties for abuse. Judicial reform is unlikely to match the speed of private collection. Even in advanced industrial countries with modern judiciaries, completing a civil suit can take one to three years—far too long to allow perishable or rapidly depreciating movable property to serve as collateral.

Of course, when debtors are intransigent and private methods of seizure and sale fail, the creditor may need a court order to instruct the police or other state enforcement agent to forcibly repossess the collateral. But a well-designed modern law gives the judge no discretion in issuing that order. Instead, the judge must issue it upon receiving evidence that the debt has not been paid, even if the debtor is not present. Such a law, requiring a simple decision, can operate well even in judicial regimes otherwise in need of substantial reform. Debtors in such systems do not forgo their defenses against unfair collection, but they cannot use them to prevent repossession.

Although judicial reform is not necessary for a modern secured transac- tions system, a modern secured transactions system can offer substantial sup- port to judicial reform. In many countries a large share of court cases involve debt collection, and in countries that still practice debt imprisonment a large share of inmates are in jail for unpaid debts. A reformed system for secured transactions can reduce burdens on courts and prisons, freeing judicial systems to focus on administering justice.