COLLATERAL PLEDGES IN GUATEMALA

Thousands of small producers across Guatemala may already have access to bank loans by furnishing their working tools or chattel mortgage on livestock, purchase orders, receivable invoices, crops, and so on, as collateral security. All this with the help of the Pledge Law duly published in the Official Gazette, effective January 1 2008. The spirit of the law is to create a rather unconventional format when furnishing personal property, and to invalidate some civil law definitions that have become obsolete due to the current progress made by humankind.

Over 1.3 million micro, small, and medium enterprises will benefit from this law, particularly enterprises doing business in rural areas, where no loan access is available other than unorthodox usurious methods punishing borrowers with high interest rates.

Historically, lack of conventional guarantees has been one of the obstacles preventing small enterprises from obtaining loans from the domestic financial system. Banco de Desarrollo Rural (Banrural) is the only bank accepting these guarantees.

Implementation of the Pledge Law has meant investment of approximately US$1.5 million, among other things, for the creation of an electronic Collateral Pledges Registry, which works attached to the Ministry of Economic Affairs in coordination with the Land Registry and the Corporate Business Registry.

The purpose of this registration is the creation, amendment, renewal, extinction, and execution of security interests by bank creditors, or particular guaranteed creditors.

From its inauguration on January 2 2009, the Collateral Pledges Registry has received a large number of applications from large and medium enterprises, for registration of collateral pledge documents in order to have access to loans. The demand for registrations with the Collateral Pledges Registry is high despite the global economic crisis. International banks are lending money to Guatemalan companies furnishing, as collateral, pieces of property applicable within the framework of collateral pledges.

The Pledge Law changed several typical civil law institutions such as the pledge. Currently, a pledge, as a real guarantee right, is only applicable to certain type of personal property such as motor vehicles. All other personal property, furnished as guarantee of real obligations, is governed by the Pledge Law.

Despite the large number of applications filed by users with the Collateral Pledges Registry, the practical execution of the Pledge Law has been difficult for Guatemalan Attorneys at Law and Notaries, as there is any number of opinions as to how this law must be applied. All public registry offices involved have different criteria, thus getting into registration deadlocks which, according to law, must have practical and fast benefits pursuant to the anti-formalistic spirit determined in the Pledge Law.

We hope all this red tape and diversity of registration opinions is a result of the newness of the law, and, in time, its efficient application will benefit all Guatemalan citizens with loan access and by promoting their personal and corporate improvement.

Lexincorp in all its offices in Central America can advice you regarding granting of pledges and any other guarantees.

Any concern or requirements can be sent to our email address info@lexincorp.com