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The Daily Wildcat

The Daily Wildcat


    UA-based lending law takes hold in Guatemala

    A new type of lending law, drafted by a UA law professor and graduate students, was recently adopted in Guatemala and is in the process of being adopted elsewhere throughout the world.

    The law, drafted by Professor Boris Kozolchyz, the Evo DeConcini professor of law and director of the National Law Center for Interamerican Free Trade, is aimed at helping small- and medium-sized business owners obtain asset-based loans.

    Asset-based loans, which are different from microlending, are a type of loan whose collateral is based on a promise of future purchase, Kozolchyz said.

    A rural cooperative, for example, promises a farmer that it will buy a certain amount of his crops and take that contract to a bank.

    The bank will determine the amount of money the farmer is expected to earn and advance a part of the money to the farmer to buy seeds or fertilizer, he said.

    “”The collateral is the money that will eventually be paid to the farmer by the buyer of the cotton or the buyer of the crops that are being used as collateral,”” Kozolchyz said. “”It’s the idea that there’s something that can produce a stream of income, anything that can produce a stream of income, can become collateral.””

    Although lending law exists in developed countries such as the United States and Canada, this type of lending is a departure from the traditional forms in Latin America, where only people with land or connections can obtain credit, Kozolchyz said.

    “”In the history of Latin America and many developing nations, there’s never been a law that allows (credit access for) the people that have no access to credit – basically, everybody who is not well endowed or the friend or family of bankers,”” Kozolchyz said.

    The law is expected to impact a large segment of Guatemalan society. The majority of the country’s population would not qualify for traditional loans. About 56 percent of Guatemalans live below the poverty line, according to the World Factbook.

    The impact lending laws will have on countries that adopt it is significant, Kozolchyz said.

    “”Very conservative estimates, studies with some really good statistical backups by the World Bank and other entities, indicate that at least 10 percent of the country’s GDP is tied up in not having this type of a credit,”” Kozolchyz said. “”You’re talking 10 percent and upwards. So that’s very significant.””

    If drafted and implemented properly, the law can produce results in Guatemala’s economy within as little as a year, Kozolchyz said.

    Both the United Nations and the Organization of American States have model laws for this type of lending, for countries interested in implementing it, Kozolchyz said.

    Already, other countries are adopting or drafting similar laws.

    The law is before the legislature in Honduras and Costa Rica, and El Salvador is also expected to adopt the law, he said.

    Elsewhere in Latin America, the Andean Market nations are looking into adopting the loan.

    In Africa, Nigeria has invited the National Law Center to participate in a bidding process to adopt a similar type of law, Kozolchyz said.

    Graduate students who worked on the drafting of the law were able to gain real-world experience, he said.

    “”It’s also from a teaching and research standpoint very exciting, because it enables graduate students at the U of A and the law school to participate very directly in drafting first of the OAS model law,”” he said.

    For Kozolchyz, who has been studying this type of lending since the 1960s, the implementation of the law is rewarding.

    “”It’s the ability to see some very noticeable change in the standard of living of people that need it very badly,”” he said. “”So it’s very exciting.””

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