UN working group drafts guide on legislation for secured credit transactions

30 March 2004

In a bid to make access to low-cost credit easier in many countries, and therefore promote economic development, a working group of the United Nations Commission on International Trade Law (UNCITRAL) has drafted a legislative guide on secured transactions, or loans that are guaranteed by collateral.

Recommendations for the proposed guide - designed to give countries a template for how they should frame their domestic legislation on secured transactions - were adopted yesterday after a meeting of working groups. It is hoped a final guide can be adopted by the organization by 2006.

The working group's chair, Kathryn Sabo of Canada, said yesterday that the guide, if implemented by countries, should provide more legal certainty to lenders and borrowers.

"The guide aims to present to legislators recommendations for establishing a secured transactions regime that is efficient and transparent, that fairly balances the interests of the parties and that meets the goal of facilitating access to credit at lower cost," she said.

One of the drafters of the guide, Richard Kohn, who is a lawyer in the United States, said the guide will help many countries to modernize their laws and remove any shortcomings or other flaws. This will encourage prospective lenders from other countries to make loans where once they had been unwilling.

"In some countries, in order for a creditor to obtain a security interest, he has to have possession of the collateral," he said. "This may be a problem, because the borrower needs possession of the collateral, for instance of equipment or inventory, in the operation of his business."

UNCITRAL is the core legal body of the UN in dealing with international trade law, and aims to harmonize and modernize the rules of international business.


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