Regulation and Supervision

When one hears the term “insolvency,” it is likely that images of bankrupt business shutting their doors, banks and investors fighting to recover their loans, and individuals losing their jobs come to mind.Yet, as a new publication by the Debt Resolution and Business Exit Program at the World Bank Group points out, insolvency is not just about the liquidation of failing businesses. Rather, effective insolvency frameworks also provide an orderly legal process for the reorganization of insolvent entities. As such, insolvency law helps save viable businesses, and allows failed businesses to “exit” the market efficiently and effectively, returning assets to productive use.

The Centre for Financial Regulation and Inclusion (Cenfri) is a non-profit think tank based in Cape Town and operates in collaboration with universities in the region. Cenfri's mission is to support financial sector development and financial inclusion through facilitating better regulation and market provision of financial services. We do this by conducting research, providing advice and developing capacity building programmes for regulators, market players and other parties operating in the low-income market.

A large part of what defines the environment for doing business in a country is set in legislation. In many countries around the world, business regulations are more difficult than necessary, and some have taken great efforts to remove unneeded impediments with the aim of stimulating entrepreneurship and investment.But does that lead to actual improvements in the business environment?

Alibaba, working with Bank of China, China Merchants Bank, China Construction Bank and other banks, is offering big data-based unsecured credit loans of up to 10 million yuan for small and medium enterprises (SMEs) using Alibaba Onetouch's basic export services. This is the first time ever that banks provide unsecured loans for SME based on Alibaba's big data and credit system.

Indian Prime Minister Narendra Modi has launched a plan to provide a bank account for every household, in a landmark initiative to help the poor. Nearly 40% of Indians have little access to financial services and are often at the mercy of moneylenders who charge extortionate interest.
Reports say Mr Modi's government aims to provide bank accounts to 75 million households by 2018, and to have two account-holders per household.

The central cabinet has issued a guideline detailing measures outlined at a July meeting to ease funding bottlenecks for companies, particularly smaller ones. As "downside pressures remain large" in the economy, the cabinet said it was important to ease high financing costs. While large, state-owned enterprises can take out loans at 5.8 per cent interest, borrowing costs for smaller firms can be as high as 17 per cent.

The willingness of banks and investors to support new businesses depends a great deal on the rules that govern failing businesses. Effective insolvency regimes save struggling firms when possible, or reallocate assets of failing firms more productively. These procedures—focused on the end of the business life cycle—have a profound impact on the beginning.

Despite the increased attention paid to and the acknowledged relevance of cross- border banking, there continues to be a lack of comprehensive research and analysis of this topic as the basis for developing a coordinated policy agenda.