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SME Legal Environment Meeting Minutes 11 March, 2005 Agenda
15:30 - 16:30 - IFC Private Enterprise Partnership Tajikistan Office
- FORMAT OF THE MEETING ? COMPOSITION, AGENDA, MINUTES
The meeting gathered the following participants:
- Bill Kennedy, USAID-ARD/Checchi Legal Infrastructure for Market Economy project
- Bernd Messerschmidt, TACIS Implementation of Trade and Cooperation Agreement Project
- Khushnidjon Rasulov, GTZ Micro Finance Development Project
- Rustam Ilolov, EBRD TMSEF Project, LFS Consulting
- Jim Egan, First Micro Finance Bank
- Bess Brown, OSCE
- Hasan Aliev, FIAS/MIGA Improvement of Investment Climate and Investment Facilitation Project in Tajikistan
- Florentin Blanc, IFC Tajikistan SME Survey and Policy Project (hosting)
Minutes taken by Manizha Sharifova, IFC Tajikistan SME Survey and Policy Project
This was the first meeting of the SME Legal Environment Working Group and the format was kept open and flexible.
- INFORMATION SHARING
2.1. USAID - ARD/Checchi ? Law on pledge and pledge registry
ARD/Checchi informed on the situation of the law on pledge, adopted by Parliament, and signed by the President on March 1st. The law can be deemed a significant breakthrough in improving the conditions for credit operations, and is expected to have a major impact on how banks and MFIs work.
The law provides for voluntary registration of pledges, that is, pledges do not have to be registered, but those that will be, will have priority over those that are not. This means that non-registered pledges can still be valid, if the same item has not been pledged and registered as well. In case of a borrower?s default, claims will be processed in the order of registration, not according to the dates of credits. In any case, items can be pledged several times, and what then counts is the precedence in registration.
As a result, a significant part of the law?s implementation is the very creation of a pledge registry, that, in current technical and administrative conditions, is challenging. USAID/ARD-Checchi is providing assistance for this, both technical and financial. The project unfortunately only has about 6 months left for this, and it will be very intensive work. It will include taking a group to Sarajevo, as Bosnia?s system has been taken as example.
There will be a transition period during which existing pledges will be covered. A considerable education and information effort will be needed, in particular for banks and MFIs? staff.
The registry will be kept in the Ministry of Justice. The cost of registration should be low. Notaries will not be involved. Consultation of the registry will be possible from regional (oblast) offices. They will be linked with the central registry by fax, and answers should come in a short timeframe (max. a few days). There is concern that oblast level offices might not be enough ? this can be discussed in the next working group meeting.
Enforcement of pledges can be made outside of courts (if this provision was indicated in the pledge agreement) or (in any case) through the courts.
The pledge law applies only to movable assets ? current legislation does not allow to use land as collateral. The civil code and land code for the moment contradict each other on the issue. In theory crops could be pledged (proceeds of crops, that is), but it does not sound very workable. As a result, the law is expected to have limited impact on agricultural credit. However, livestock can be included. Only things can actually be seized can be included as pledge (Tajik law protects some personal assets).
The law allows for ?purchased money security interest?, that is: if a lender already has a security interest in ALL the property of a borrower, this borrower can nevertheless access some additional credit, from another lender, who can get a security interest on the equipment/items that will be purchased precisely from his credit ? thus allowing the borrower to continue business. In that case, although the second lender?s security interest came later, it will have precedence for the precise items purchased.
This law and register mean that buyers of second hand equipment will have to check the registry to make sure that they are acquiring full property ? the buyer will not be presumed to be ?in good faith? ? this is similar to a number of other countries.
However, the following provisions apply to protect buyers from retail businesses as a result of normal retail transactions ? the property is then obtained free of pledge except if the buyer was informed in written of the existence of a pledge.
The law is attached to these minutes. Follow up : input is wished on the registry implementation. This input can be forwarded directly to ARD/Checchi or through the working group ? discussions on regulations, which are currently being prepared, will take place too. ARD/Checchi will update the group about these.
Additional information
Contact person: Bill Kennedy
2.2. USAID - ARD/Checchi ? Administrative Procedure Code
ARD Checchi informed the participants that a working group, including the Ministry of Justice, President?s Office etc. has been formed to (1) assess all existing administrative laws, (2) draft a new Administrative Procedures Code. Two Codes and associated reforms are used as examples: Georgian and Latvian. Close coordination planned with IFC SME as Latvia?s example used by both, and close links between admin procedure and inspections ? also, consultant for IFC Sanda Putnina has been providing some assistance to ARD/Checchi on Latvia. Overall a key reform that will require input from all stakeholders. ARD/Checchi will provide information to the group on further steps, and how they can provide feedback to the project. Possibly in the next group meeting a full presentation of the work will be done, and of the timeframe for preparation of the code, key seminars/round tables to be held etc.
Additional information:
Contact persons: Suhrob Hojimatov?ARD/Checchi, and
Gulchehra Sharipova ? First Deputy Minister of Justice, chair of the working group
2.3. New USAID project on Financial Governance expected to start soon/implemented by Bearing Point
More information may be available for the next working group meeting. It is only known at this stage that this project has been awarded, as a follow up to previous projects.
2.4. Micro-Finance Sector Development project / ADB-NBT
The project is now ready to start after many delays due to institutional difficulties. Advertisements have been posted to recruit the PIU team.
The Law on Microfinance Institutions is in force, however the regulations of the National Bank for Microfinance organizations that need a license are still in the process due to the overall regulation on Licensing still being drafted. Regulations for Micro Lending Foundations have been adopted and registered in Ministry of Justice, according to the last information 3 foundations have been registered so far:
- MLF ?HUMO?
- MLF ?IMON? (NABWT)
- MLF ?Hakik? (German Agroaction)
Additional information:
Contact persons: Mavsuda Vaisova ? Association of Micro Finance Organizations of Tajikistan, Chair
Dmitry Nazarov ? AMFOT, Executive Director
2.4. IFC Tajikistan SME Survey and Policy Project
The project will implement the following components:
? Legal reform, to ensure that inspections are conducted in a framework that regulates their scope and frequency, reduces overlapping inspections, clarifies rights and obligations of inspectors and entrepreneurs;
? Reform of inspectorates? internal procedures, to help key inspecting structures meet their goals and use their resources more effectively;
? Information campaign, to inform entrepreneurs of their rights and responsibilities in the inspection process;
? Second survey of regulatory environment for SMEs, to be conducted in 2006 to monitor the evolution of the situation.
According to the Government Action Plan for 2005 the new Law on Inspections to be adopted. With this regard the number of meetings with inspecting bodies, business associations, and entrepreneurs as well as 2 round tables aimed at discussing the current situation with inspections, defining the problems that need to be addressed, and identifying the further steps, including legislative changes to improve the system of inspections are to be held during the coming months.
Additional information:
The updated information together with the results of the First Round Table will be sent to the working group by end March/early April.
2.5. TACIS ITCA Project
ITCA is finalizing first assessment of the compatibility between Tajik and EU legislation that should be ready by end of March and after that could be circulated to the SME group. The main focus at the moment is made on intellectual property law.
It is planned to organize a legal drafting workshop (took place already now)
Additional information:
Contact person: Bernd Messerschmidt, ITCA project
2.6. MIGA/FIAS Improvement of Investment Climate and Investment Facilitation Project in Tajikistan
The project aimed at strengthening investment process and facilitating foreign investment in the country and consists of the following components:
During the 1st phase of the project that will last till end of June it is planned to study the current situation with investment in Tajikistan and prepare the list of recommendations to the parliament in the form of matrix. It is envisioned that the matrix could be signed by the president. In the framework of the project the following activity is to be done:
? Video Conference to be held in March 17, 2005 (took place);
? Business Forum to be held in April, 2005 (more information is expected from the project, to be forwarded to the working group).
One of the major concerns is coordination of investment activity with different institutions involved and avoiding any duplications.
Recommendations of participants:
? Have a Coordination Meeting once a month? for joint discussions and advocacy with the stakeholders and government representatives.
? To circulate the matrix among CM participants for comments and recommendations to be sent within 10 days.
? Matrix based on Kyrgyz example on investment barriers should be circulated among SME group members (attached)
Additional Information
Contact persons: Hasan Aliev, FIAS/MIGA project
- HOW TO SYSTEMATIZE DISCUSSIONS?
Recommendations:
? To have a Meeting of the SME working group every month,
? To include more interested people in WG, in particular from the private sector
? To invite representatives from the government to some of WGs, preferably from the executive office of the president ? Mr Buriev, Head of Economic Reform Department is interested in this group. It is needed to schedule discussions between the group and the president?s office, Ministry of Justice etc. ? periodicity and framework to be kept open and precise with the group, precise participants to be identified, but principle is agreed ? these meetings should remain informal
? Inform all the participants in advance
- CONCLUSION
Next meeting
Date: to be confirmed ? April 29 proposed, 2:30 pm
Place: IFC private Enterprise Partnership office, 6, Hamza Hakimzoda str, Dushanbe
Duration: 2 hours
Draft Agenda (to be sent along with all the attachment to all the participants):
? Licensing
? Registration and publication of normative acts
? Land and real estate property
? Information campaigns
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