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SME Legal Environment Meeting Minutes, February 24, 2006 February 24, 2006 - 15.30-17:00 - . IFC Private Enterprise Partnership Tajikistan Office
List of Participants
Before the start of the actual agenda for the day, Bairiddin Shermatov, OSCE, shrotly presented the work of the OSCE-funded project, implemented by the ILO, on SME development, the key result of which was the development of a directory on ?SME Development in Tajikistan?. The booklet can be useful for trainings and additional copies can be obtained from OSCE office.
- PLEDGE REGISTRY
The USAID Commercial Law Project, implemented by ARD/Checchi, has assisted the Government in developing a new Law on Pledge of Moveable Property. To make this law useful, it was needed to develop a Pledge Registry. This was done based on international experience, particularly on the successful model of Bosnia and Herzegovina, and the technical aspects were sub-contracted to Credils Llc. Yair Baranes, Director of Credils, made a presentation on the way the Pledge Registry works (see attached).
The key aspects of the registry are:
1) it allows to set priorities between different claims to the same pledge (registered over unregistered, prior registration against later registration)
2) it allows users to check the status of a property offered as collateral
3) users are expected to be essentially credit organizations
4) the registry is set up in the Ministry of Justice and can be consulted remotely through requests sent by email or fax
5) cost of registry use is low
6) the system can be upgraded to be fully ?on line? if technical possibilities exist at a later stage ? the software could also be used to register other types of pledge.
After the presentation a discussion followed. Of particular importance was to understand how the searches were made ? of particular importance to credit organizations, searches can be made against the Tax Identification Number of a would-be borrower, and return all the pledges (s)he has made, which appears to be very effective.
Mr. Baranes observed that the register could not state the value of property, for many reasons, the main one being that property value changes constantly. It is therefore essential to have the property well described. He also added that the amount of the loan should not be shown as it was private information. If necessary for a lender to check how much has been lent against a particular good (in case this good is to be pledged a subsequent time), the would-be second lender can contact the first lender.
Serious concerns were expressed re. receiving the registration confirmation. This has to be received in paper form to be valid according to applicable law, and thefeore the system foresees that it should be sent by postal mail. However, many participants highlighted that postal mail inside Tajikistan simply does not function. Though the Registry could send a scan of the confirmation per email (or a fax copy), this first has to be agreed with the Ministry of Justice (under discussion). In any case, a solution needs to be found for the paper version. Since it was agreed that avoiding to have users go to the Registry themselves would be preferable (to avoid opportunities for corruption), it was suggested that the paper copy could be addressed to a P.O. Box in the Central Post Office in Dushanbe (these usually work well). Options have to be investigated and a suitable solution found.
- OTHER SECURED FINANCE ISSUES ? PLEDGE, MORTGAGE
Different points were discussed, mainly relating to two issues:
- definition of moveable vs. immoveable property,
- mortage legislation and legal issues constraining mortgage development.
On moveable vs. immoveable property, current Tajik legisltation, as per Soviet tradition, includes cars/automobiles/trucks inside ?immoveable? due to their high value. This still has not been amended in spite of efforts to this aim. Also, vehicles are subject to several types of registration, incl. by the GAI (State Automobile Inspectorate). Bill Kennedy advised that the Law was being worked upon, but it needed time to change it.
As many participants were interested in mortgage development issues, Florentin Blanc invited Dilshod Kholmatov, from IFC Central Asia Mortgage Development project, to give a brief description of their project and of the situation with the legal framework for mortgage development in Tajikistan.
In summary, the key issues were as follows:
- there is no specific law on mortgage and the mentions of mortgage in existing legislation (e.g. civil code) do little to clarify it,
- Mortgage and property cannot be registered simultaneously ? meaning that the borrower would first get the money, then buy the property, and finally come back to the bank to pledge the property ? of course, banks would not want to take such a risk,
- there is no proper system for credit to fund construction,
- absence of a credit bureau,
- no law, standard, specialists etc. for property valuation,
- registration of land/buildings ?property? is highly problematic (see below),
- registration of pledge of immoveable property poses additional problems (there is currently no functioning system and the draft law being developed by the government foresees double registration in two different state structures, Ministry of Justice and State Land Committee).
Further discussion highlighted the following issues:
The issue of land and buildings ?property? is made particularly difficult because the current legislation envisages their registration by different bodies. Purchasing a building gives a right to the land plot ?under it? but this still requires to obtain a land certificate and the process is complicated and long. This would constitute a formidable obstacle to the development of mortgage for individidual houses (the situation is easier with appartments).
In addition, land use rights are too fragile (expropriation is too easy and compensation mechanisms inadequate) to be suitable for mortgage development. In any case, reform of this legal framework is an indispensable basis for further development of specific mortgage legislation. IFC project is to produce a report on the situation, that is to be released soon ? all participants expressed strong interest in this report, all the more so as mortgage development is a ?hot topic?, with the government addressing requests for assistance to many donors.
- OTHER ISSUES
Florentin Blanc informed that next week a the draft Inspections Law and revision of the Law on Licensing were expected to be endorsed by Government meeting (N.B. this has taken place). He also advised that the draft new Administrative Violations Code had been 20-30% translated, and the translation circulated.
He underlined that in the current system there were mostly no sanctions foreseen for State officials who violated the law. In the proposed draft, even though a certain number of sanctions for violations by State officials are introduced, many issues are not covered, and overall the level of punishment is incoherent. Comments from all SME Group members would be welcome as it is indispensable to intervene to improve this draft.
Going back to the issue of property definition, it was noted that vehicles should be treated and defined as movable property and could make pledges.
In this connection Florentin Blanc asked about the status of Immovable Property Law. It was reported that mortgage could not be registered without the ownership rights. Buildings were registered with Ministry of Justice, and the land was registered with Land Committee. Everybody agreed that was not sensible and created problems to urban development. The conclusion was made that the rural land needed to be registered with a third body.
Florentin Blanc noted that when purchasing a building to reconstruct it, the Land Certificate is needed.
It was reported that there was an Interministry working group specially created for working on this issue as well as many donors were focused on it.
At the end, Florentin Blanc thanked everybody for coming, the participants exchanged the contact information.
Minutes taken by Anna Shoeva, IFC Tajikistan SME Survey and Policy Project
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