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The Inter-Summit Property Systems Initiative (IPSI)

Summary Presentation

Broad-based Economic Growth Team
Regional Sustainable Development
Bureau for Latin America and the Caribbean
USAID Washington

Please send questions and comments to Don Drga (ddrga@usaid.gov )
or Jolyne Sanjak 
(jsanjak@usaid.gov)

I. The Problem of Informality

In Latin American and the Caribbean, the informal sector is a massive and important part of the landscape. Squatter settlements and unregulated street vendors combine with the less obvious informality of small business and non-poor households to constitute a major part of the economy. Table 1 presents some of the scant data that quantify informality, most likely underestimating its magnitude. The numbers are large and disconcerting. It has been demonstrated that these numbers reflect a largely under-tapped economic resource and that the lack of formalization is a key impediment to the alleviation of poverty /1. Yet, only slow and limited progress has been made toward including the informal sector in the process of economic growth and development.

Table 1: Informality: The Magnitude in Property, People and Economic Importance


Country Examples


Properties* 

 People
(% of urban labor force)

Economic Importance
(informal activity as % of GDP)

Economic Importance
($ value of assets)

PERU
COLOMBIA
HAITI
GUATEMALA

1.6 Million (urban)
3.1 million (total)
350,000 (Urban)
425,000 (Guat. City)

39%
27%
na
40% +

60%
35%
na
50%

$74 Billion
na
$5.2 Billion
na

Rural informal property still amounts to more than 50% in many countries and reaches 90% or more in several places e.g., in Haiti 97% of all rural property lacks formal rights and in Guatemala the figure is 95%.

The complexity of the land tenure situation in Latin America and the Caribbean is just as astounding as the magnitude of the problem. Historical overlapping of formal, informal and customary tenure regimes and disagreement as to the relative validity of each is a source of socio-economic stagnation and of , often violent, conflict.

The ILD /2 estimates the value of informally held land and buildings in Latin America to exceed $1.6 trillion!


Sources of Information: The information on Parcels was obtained via informal correspondence of USAID, the ILD and the IADB. The data on ‘People’ is taken from Table 4 in Loayza (1994) and are dated 1989. The data on % of GDP is from 1992 and is taken from Table 1 in Loayza (1997). The data on value of assets are estimates provided by the ILD from their project materials.
*There is no source of comprehensive and systematic data on the number of informally documented properties. These numbers are likely to underestimate the magnitude of informal property.
+ data from 1980 – 1989 statistic is not available

Holden and Rajapatirana (1996) state that "Insecure property rights, inadequate dispute resolution mechanisms, stifling regulation, and poorly functioning legal systems conspire to stack the deck against upward mobility and the diffusion of wealth and power." This statement of the issues at the core of IPSI reflects the complicated and multifaceted nature of the relationship between property rights systems, the alleviation of poverty and economic growth. Clearly, the inadequate development of property rights systems in Latin America and the Caribbean is the principle source of informality. As such, the problems of property rights systems and approaches to resolving them are the focus of IPSI.

 

The Impact of Removing the ‘Formalization Barrier’

  • recognition of a basic liberty
  • providing a greater stake in society
  • opening opportunities: Credit, Investment, Jobs and Income
  • improving quality of life
  • "... transforming dead capital into a live asset!" (ILD)

II. The Persistent Problems of Property Rights Systems

In this document, 'property rights systems' refers to the laws defining land tenure options, forms of ownership of moveable property and of enterprise; the assignment of rights to property under various forms; the institutions that record, authenticate and enforce such rights; and, all the complementary laws which affect the ability of one to exercise transactions with property /3.

The following lists the major and persistent problems of property rights systems in the LAC region.

  • large numbers of informal property holders and informal business enterprises
  • complicated and antiquated land administration systems limit transparency, exaggerate transactions costs, slow the pace of formalization, and hinder market-based access to land
  • centralization of authority and of access limit use and increase costs
  • women have a particularly hard time accessing the formal systems due to cultural, institutional and educational barriers
  • continued insecurity of indigenous property rights lacks systematic attention and resolution often leading to violent conflict.
  • lack of adequate dispute resolution mechanisms that allow access by all segments of society and that consider customary and informal norms for property rights
  • the incomplete and disorderly data on property rights and land characteristics means the lack of adequate information bases for resource management and good governance.

In the context of globally integrated, market-based economic growth and the drive toward the eradication of poverty and discrimination, the hindrance of these pervasive problems is increasingly felt even by those in the formal sector.

III. The Summit Call to Improved and Accelerated Action

In April of 1998, the Heads of Governments of 34 States of the Americas met in Santiago, Chile and agreed on a Plan of Action to strengthen markets and deepen democracy through 2nd generation reforms. First generation reforms involve changes at the macroeconomic level including basic reforms in the fiscal and monetary sectors, trade liberalization, and privatization of state enterprise. Second generation reforms include the deepening of first generation reforms as well as the introduction of ‘reforms at the microeconomic level which are needed to make the changes brought about by the first generation reforms sustainable (Holden and Rajapatirana (1996).’ Among the key second generation reforms are changes to the legal and institutional framework defining property rights.

Of the four issue baskets addressed in the Santiago Summit Plan of Action, poverty alleviation (formally entitled "The Eradication of Poverty and Discrimination") is the most directly relevant to the work outlined in this strategic plan. Under poverty alleviation, the initiative on property registration establishes an agenda for strengthening property rights systems in the Hemisphere. First, 34 Presidents agreed to make the processes of adjudication, titling, and registration property rights more efficient.

Summit Initiative on Property Registration – Action Item 1

The Governments will:

  • Streamline and decentralize
  • Adopting transparent, simplified procedures
  • Disseminating information
  • Utilizing, whenever feasible, state-of-the-art technologies
  • Incorporating alternative dispute resolution mechanisms
  • Avoiding overlapping administrative fees

Next, the 34 presidents agreed to accelerate progress with increased efforts of donor institutions. 

Summit Initiative on Property Registration: Action Item 2

The Governments will:

  • Recommend that multilateral and bilateral cooperation institutions strengthen their financial and technical assistance programs
  • Information exchange regarding experiences
  • Simplified property registration procedures
  • Assure access for the poor to those systems

Finally, the 34 presidents agreed to dedicate more attention to the issues and conflicts over the rights of indigenous peoples. 

Summit Initiative on Property Registration: Action Item 3

The Governments will:

  • Implementmeasures…to protect rights accorded to indigenous populations
  • Information programs ... greater awareness

The United States Agency for International Development (USAID) is the lead agency with responsibility for implementation of the property registration action items. The Inter-Summit Property Systems Initiative (IPSI) is the mechanism through which USAID will assume its leadership role. IPSI, thus, will contribute to the alleviation of poverty in the region by improving access to income-earning market opportunities through facilitating more rapid, lower cost solutions to the long-standing problems of defining and documenting property rights. Progress toward the realization of property rights systems with security and access for all will also enable further movement toward the realization of an integrated hemispheric market economy in the next Summit round.

IV. The Approach and Structure of IPSI: A Snapshot

IPSI seeks to orchestrate an integration of approaches to and an acceleration of efforts toward the formalization of property rights and the improvement of property systems infrastructure in a manner consistent with the characterization specified in the Summit Plan of Action. More specifically, the activities of IPSI are designed to achieve two goals: 1) to advance the reform of public policy related to property infrastructure; and, 2) to reorient, accordingly, the manner in which property formalization proceeds. IPSI will enable progress toward these goals by engaging in and/or sponsoring activities to facilitate three types of coordination:

  1. coordination of work across providers of capital assistance and of technical assistance (i.e., the multilateral development banks, US bilateral missions, non-US bilateral missions, and, NGOs);
  2. coordination of work across program themes - the establishment of property issues as a cross-cutting theme; and,
  3. coordination with end-users of and intermediaries for parcel-based geographic information systems to achieve a reorientation toward user-friendly, client-driven systems.

Thus, the objective of IPSI is essentially to foster a coalition of interests in getting the job of property rights systems reform done quicker and better.

A. Recognizing Property as a Cross-Cutting Theme

It can be demonstrated that the problems of property rights systems are of mutual concern to a number of program areas i.e. property formalization is a crosscutting theme. Recognition of this interconnectivity or web of mutual interest should be used to spawn a powerful coordination of efforts and coalition for advocacy. Specifically, whereas proponents of reform working in any single program area have limited ability and limited resources to leverage high-level action, a consortium of interests in property rights systems reform would be loud and influential. Drawing attention to the need for comprehensive legal and judicial reform could break the political bottleneck identified by the ILD as the major substantive barrier to real progress. Furthermore, such a consortium would allow a better coordination of efforts and, therefore, more effective use of funds. The current historical juncture is right for crosscutting action on a crosscutting problem.

The textbox below illustrates property rights information systems as a cross-cutting concern. It is followed by three illustrations on important contemporary development issues – women and development, democracy and governance and microenterprise development.

Property is a Cross-cutting Theme

Program Theme

Impact of Property Rights Systems Reform

Broad-Based Economic Growth

  • Basic rights extended
  • Market access improved
  • Sustainable growth facilitated
  • Democracy fostered
  • Multiple-use GIS available
  • Conflict resolution enabled
  • More effective property markets

Microenterprise Development

  • Market access improved
  • Sustainable growth facilitated

Judicial Reform

  • Basic rights extended
  • Democracy fostered
  • Conflict resolution enabled

Democracy and Governance

  • Basic rights extended
  • Democracy fostered
  • Conflict resolution enabled

Environment/Sustainable Agriculture

  • Sustainable growth facilitated
  • Multiple-use GIS available
  • Market access improved/
  • More effective property markets (more rational distribution of land)

Urban Housing

  • Market access improved
  • Conflict resolution enabled

Women in Development

  • Basic rights extended
  • Market access improved
  • Conflict resolution enabled

Municipal Development

  • Sustainable growth facilitated
  • Multiple-use GIS available
  • Deficit reduction enabled
  • Increased social investments facilitated

1. The WID Link

The problems of informal property transcend gender lines plaguing a majority of the poor in the LAC region. However, these barriers affect women even more than men. Moreover, in the past attempts to help the poor overcome property-related barriers to development usually overlooked the specific problems that women face. In Latin America today, interest in bringing gender-equity into the arena of the definition and recognition of property rights is growing rapidly. The main issues of concern include the following: First, laws regulating formal adjudication and registration of property rights are often silent with regard to gender, thereby, leading to de facto gender-bias in application. For example, laws governing privatization of land, land titling and registration often are written in the masculine form or speak of 'household heads' which, in practice, translates to 'men.' Yet, greater than 40% of the potential beneficiaries of registration projects, especially in urban settings, are estimated to be female-headed households. Second, laws relating to property ownership and management (e.g., inheritance and contract (tenancy) laws), sometimes explicitly favor men. Third, there are seemingly unrelated laws which lead to de facto gender bias. For example, family law that does not recognize customary and common law unions as marriage, may preclude women from joint ownership of land or from claiming rights in the case of separation.

Finally, even where legal reform has been cognizant of the special concerns of women, the institutions, processes and projects associated with implementation are, at best, more difficult for women to traverse than for men. Sociocultural norms which do not include women as full and equal participants in economy have not yet adapted to modified legal structures. Titling programs and land fund projects are often staffed by men who do not share the vision of gender equity and, thus, do not target or facilitate women as legitimate clients for their activities. And, women often lack the skills and confidence to approach institutions that have traditionally been the domain of men.

Against this background of persistent problems, the 1990s have put gender concerns on the agenda of policymakers and project implementers. Current approaches to addressing gender-specific issues in this context include the following: 1) local, gender-specific analysis in project design studies; 2) recommendations for legal reform in order to facilitate gender-equity; 3) information dissemination so women are aware of the new era in which their rights are being recognized; and, 4) training for the personnel of the public and private entities involved in the implementation of programs to raise the level of awareness of gender issues and appropriate solutions.

The 1990s have already witnessed concrete achievements inpromoting gender-equity. Some examples serve to illustrate. With USAID technical assistance, the Agricultural Modernization Law passed in Honduras in 1992 was written to explicitly recognize women as beneficiaries of land adjudication, of land finance mechanisms and as explicit subjects of land titling and registration programs. This law also allowed for the first time the issuance of title jointly in the name of a couple, whether or not the couple is formally married. In practice, however, initially the personnel of the titling programs tended to target only men, overlooking women especially as co-owners. Recent statistics indicate that progress is being made -- in 1998, 24% of the title recipients were women. Even if slow to be taken advantage of, women in Honduras are empowered to become property owners which increases their access to economic means and which protects their interests, and those of their children, in the case of divorce or separation.

Similarly, the peace processes in El Salvador and Guatemala call for greater gender equity. In El Salvador's titling and adjudication efforts, which receive significant support from USAID, roughly a third of all beneficiaries are women. In Guatemala, donor-financed housing projects require that property rights be clarified and formalized as a pre-condition to investment. In these projects, local NGO's are working with women in some communities to facilitate participation. Similarly, in Peru, the Institute for Liberty and Democracy made sure to introduce legislation that recognized the rights of women whose 'marriage' is not sanctified by formal law. The ILD also identified the large number of female-headed households and worked to include them in all aspects of the process of formalization.

IPSI will work with the WID program of the Global Bureau to assess the current status of gender-biases in property formalization and to make recommendations for addressing the specific needs of women.

2. The Democracy, Governance and Judicial Reform Link

"A popular Government without popular information, or the means of acquiring it, is but a Prologue to a Farce or a Tragedy; or perhaps both." James Madison, 1822

The reasons why property rights and related institutional infrastructure are relevant under programs that seek to strengthen democracy, better governance and achieve more effective judicial systems are many. Property is a basic right in democratic society (as expressed in our 5th ammendment). Government recognition of property rights makes property-holders stake-holders in the political, legal and judicial systems. Property ownership is an incentive to participate in governance. Basic governance is the skeleton for market economy. Private property and private transactions require the definition and enforcement of rights. It also requires that there are no legal or judicial obstacles to using property in commerce. (e.g., contracts enforcement, standing to sue, foreclosure rights, arbitration mechanisms, clerical functions not assigned to the judiciary, definition of rights to pledge collateral, etc.). Competitive markets require transparency. The ability of the government to serve its constituents is also improved with functioning property rights systems (corruption can be checked more easily, fiscal discipline and service provision are enhanced, etc.) Likewise, the ability of business to flourish depends on stable and dependable governance. Formal taxation is usually more predictable than informal forms of taxation. Regulation and enforcement of standards encourages capital flow to business. Loayza (1997) indicates, in fact, that the size of the informal sector varies inversely with the quality of government institutions.

Despite these strong relations of property to democracy and governance, property rights systems reform is not central to programs on these themes. Perhaps, the most action has been through municipal development projects which often include the installation of a local, urban fiscal cadastre (sometimes, multiple use GIS). There is also some recent precedent of judicial reform projects working on legal/institutional aspects of property systems reform but not in conjunction with on-going property formalization efforts and land administration efforts. Coordination would seem logical. Therefore, IPSI activities will yield specific recommendations for expanded use of democratic strengthening initiatives, governance and judicial reform programs to target judicial problems related to property rights systems.

3. The Microenterprise Link

The Santiago Summit Action Plan clearly recognizes the relevance of property systems reform. "Fostering the Development of Micro, Small and Medium Enterprises" is also an Action Item under the "Eradication of Poverty and Discrimination." Of the eight specific Actions agreed on, two are related to the formalization of informal sector activities and assets:

" Design and Implement programs … that: accelerate the entry of formal-sector financial institutions into this market; support the development of institutions that work in the sector; and eliminate impediments that limit the access of micro, small and medium enterprises to financial services."

"Simplify and expediate the procedures for registration, obtaining liscenses, … , and the formalization, where appropriate, of micro, small and medium enterprises."

In the next several paragraphs, we will explain how these action items indicate an overlap of interests with the agenda of the ILD, in particular, and, more generally with IPSI’s focus on formalization of property and reform of property records systems. In that context, it is important to note the USAID has the leadership responsibility in both areas and USAID should explore the kinds of linking of efforts that could be mutually beneficial.

If one reviews historical discussion of how to address the lack of access to credit, it is clear that property formalization was an integral concern. However, a realization was made of the need to sequence reforms making credit available immediately to the poor a priority. In fact, it was argued that property formalization in the absence of access to institutional credit, could lead to a loss of property via distress sales, informal debt claims etc. Finding non-traditional risk management mechanisms have been found to be more expedient than trying to define property rights and the ability to use property to secure credit (collateral).

Given the lessons learned and the technological advances available for use in property formalization and registry modernization, it is possible to achieve these reforms at dramatically lower costs now and an acceleration of progress is on the agenda (see Summit agreement). Coupled with the medium to long term development needs of microenterprise and microenterprise finance institutions (MFI), does the new context for property rights systems reform implies putting property on the agenda anew? Also, while the near-term mechanisms are in place to get money into the hands of microenterprise, to allow them to gain experience and reputation, shouldn't effort be dedicated to fixing the structural conditions that limit enterprise expansion and, therefore, upward mobility?

a. Expanding Capital Available to MicroFinance Institutions via Securitization/Secondary Markets Development

Securitization has been presented as a mechanism by which microfinance institutions might expand their capital base (e.g., see DAI (1998)). It is a captivating and timely idea which blends with the attention to secondary markets issues in macro efforts to develop financial markets. Yet, securitization of microfinance involves admitting both a new angle (non-mortgage portfolios) and a new segment (informal, micro scale business operations and housing mortgages) to the secondary market. To achieve this successfully will require convincing evidence on several counts: a) repayment records are not worse than conventional lending institutions, b) property reform will allow better collateralization of loans; c) that adequate volume can be packaged so that a saleable bundle is presented to secondary buyers, d) that the organizational transformations that might be required of MFI to be viable subjects of securitization does not jeopardize their ‘social function.’

Just who the potential investors might be in a ‘non-traditional’ commodity for sale in a secondary market needs exploration as well. Looking at the experiences of US secondary market participants (supply and demand) could be instructive. For example, IDBAMERICA in a June 1988 interview with the Calvert Social Investment Foundation revealed that that institution does invest in domestic microcredit but at this juncture abstains from international MFI because of the ‘absence of adequate accessible information.

b. Massifying the Extension of Microcredit: The Role of Collateral and Enterprise Formalization

"Only 1 in 20 microenterprises has access to institutional sources of credit…" (p8 IDBAMERICA June 1998). Microfinance institutions have only limited extension to secondary cities and to rural areas. These facts call for avenues for massification of microfinance. Formalization of microfinance institutions (graduating/upstreaming), downscaling of commercial lending institutions, graduating extant microenterprise clients to the ‘small’ enterprise level, and introducing new products such as mortgage lending to MFI are all avenues to achieve massification.

In a discussion of how to massify, IDBAMERICA June 1988 says "First, the microfinance industry must graduate from thewell-intentioned but limited level of charity and grants to full participation in the formal capital markets. Second, governments must create the right climate for this new class of financial institutions to flourish." Property rights systems reform is one main ingredient of such a climate.

In regard to client graduation, which allows new microentreprenuers to enter the MFI system, there is a relatively strong consensus that collateral becomes more important in the ‘small range’ (although the definition of this range varies from expert to expert). In fact, BANCOSOL in Bolivia requires collateral for loans exceeding the typical microloan size of $300. A similar example is found in Grameen bank in Bangledesh, which was trying out a new product – medium size loans for which non-movable property must be offered as collateral. Also, when a microentreprise grows and begins to solicit bigger loans outside the framework of group lending schemes, the issue of business formalization for ‘confidence’(establishing credibility) would seem to become a concern. However, it is clear that there are substantial real or perceived costs to formalization that might outweigh the value as confidence /4. Alternatives are being found. For example, in Peru, the introduction of Central de Riesgo – credit bureau for small and micro loans – within the Central Bank and a law making mandatory loan documentation flexible apparently induced an explosion of commercial bank downstreaming.

B. Recognizing the Importance of Civil Society in Property Systems Reform

1. Concept Statement

The historical context for IPSI defines the problem of informality clearly in terms of basic rights and poverty alleviation. At the same time, there is growing cognizance of the implications for property rights systems of the global information era -- the exploding realization of the multiple uses of parcel-based geographic information systems and the increasing drive toward interconnectivity and standardization. Information technology (IT) is increasingly used in the process of defining and documenting property rights. IT can facilitate market access (on both the supply and demand side) and, thereby, empower the poor and informal to share the benefits of economic growth. IT can enable better targeting and tracking of social service provision and development assistance.

Already active in LAC in this regard, along with the donor projects, are private sector providers of mapping services (boundary delineation, administrative delineation, provision of base maps and georeferencing) and, vendors of modernized registry hardware, software and related training services). Civil society groups working to alleviate poverty through social service provision and through sustainable development programs have begun to incorporate activities related to property formalization into their programs/5. Private sector engagement in property formalization has been sporadic and limited. There is growing private sector action to reform laws regulating property registration procedures, particularly within the financial sector.

‘End-users’ of property systems include government, service sector entities, NGOs, and individual property and enterprise owners. The section that follows elaborates on these categories of end-users and their interests in property rights systems reform. The development of property rights systems in a manner that facilitates use by these groups can be very beneficial to all segments of society especially the poor. Specifically, experience is showing that modern property records management and the GIS it yields increases transparency, decreases cost and provides greater equity in traditional uses and also opens a world of new uses. Furthermore, decentralized governance is facilitated by a system that is self-financing via ‘client-driven’ development of value-added products, reduced costs of government activity and increased revenue collection capacity.

The current context for IPSI, therefore, suggests a potential for much greater involvement of Civil Society both as providers of and as users of parcel-based GIS. Synergies across civil society interests can and should be used to generate comprehensive and effective public action to reform property rights systems. The end of linking the poor to governance and formal economy – "formalizing the informal" – is served by tapping a confluence of interests in property rights systems. In this light, IPSI proposes to work to funnel the interests of civil society to bear on property formalization through advocacy and action. New, additional sources of funding, stronger advocacy for essential legal and institutional reform, and reduced costs due to privatization of key aspects of property data generation and management are three key implications of such an orientation./6

2. An Exploration of End Users and Intermediaries

‘End-Users’ include two kinds of interests: a) those who would make use of the databases created on a basis of property formalization, and b) those who will benefit directly by efficient (rapid and low cost) access to formal records which document property rights. Intermediaries include those entities involved in the generation, maintenance, distribution of and interfacing for specialized data and documentation.

The involvement of end-users and of the intermediaries who enable the end uses in the process of property rights systems reform at both the policy and operational (design and implementation) level is a nascent approach. In North America there are several examples of client-driven, self-financing public-private partnerships for land information management. The employment of TERANET by Province of Ontario, Canada to transform its deed registration system to a modernized, title registry that generates and distributes specialized GIS products is an example. Some Caribbean governments have requested consulting services from TERANET to assess the utility of replicating this model. In Wisconsin, the Wisconsin Land Information Board is a confederation of local governments working in partnership with civil society to develop modern multi-purpose land records management locally in a way that will allow statewide integration of and access to GIS. The Dane County, Wisconsin experience attests to the demand for access to efficient land information. Currently, the public registrar is working with a private partner to create a user-friendly interface to widen access. Similarly, the governments of Montgomery County, Maryland and the State of Maryland are engaging the value-added product markets to facilitate further development and cost recovery for modern, parcel-based GIS for public governance uses e.g., zoning. These examples vary in level of functional development and implementation with the Ontario experience being perhaps the most developed.

Reviewing these experiences, the conceptual work of the ILD and the traditional arguments for property systems reform suggests a four-prong typology of end uses: 1) governance uses, 2) service provision uses, 3) NGO uses and 4) commerce uses (individual and enterprise). In order to better understand the nature of the activities that are proposed under IPSI, it is useful examine each category of end-user to clarify its composition and the particular interest it represents in using property rights systems. For the sake of brevity, the discussion which follows will examine more carefully only those end-uses for which the link to property rights systems is less clear or less well articulated in existing literature.

a. Governance Uses

As a preface, a comment is in order on why governance uses are relevant under the subject of funneling interests of civil society. First, the public, represented by government, is the owner of the base documentation and information recording who has rights to what. It might choose to delegate responsibility for stewardship and distribution of information as is the case in Brazil and in Ontario, Canada, for example. However, government has a responsibility to sanction or limit particular uses in accordance with the public good and to ensure public access is maintained. Second, the design of multiple-use GIS must take into considerations both public and non-public sector interests in using data. Finally, public agencies must provide oversight to property systems reform to ensure that concerns for disadvantaged populations are addressed.

Local government uses for property records systems include fiscal management and taxation, service planning (e.g., health services and emergency response systems) and zoning. Regional, national and international governance also can make use of well-documented, local property records. These uses include environmental monitoring, food safety monitoring, dispute resolution and protection of indigenous property rights. Additionally, land records are very useful to public utility companies in planning and in providing efficient service.

As an illustration, the uses/users of the Wisconsin Multi-Purpose Land Information System reflects the multiple utility of adequate and efficient property rights systems in governance. Is uses/users include the following: register of deeds, landmarks commission/historical society, taxation/assessment, public works (water and sewer, gas and electric, transportation, storm damage, engineering, waste management), community development, recreation/parks, public safety, health officer, building inspector, justice department, zoning, conservation (agricultural extension service, county forest manager, soil and water conservation district).

b. Service Uses

The category of service uses is very broad and encompasses financial services, utilities (e.g., telecommunications, electricity, water, cable television, hotlines, etc.), real estate services (e.g., title and mortgage insurance, brokerage firms, etc.) and community development services (e.g., urban housing improvement programs). The interests of the latter three types of service uses are relatively straightforward and only a brief description will ensue. The interests of the financial services sector are not as straightforward and will be discussed in more detail.

Utilities, Real Estate Services and Community Development

Utility companies need property systems for their operational planning work and to facilitate adequate collections of payment for service (recourse in case of default and, perhaps more importantly, to minimize the incidence of illegal service tapping). For example, in Guatemala City the extension of safe water and electric supply to squatter settlements is intermingled with the question of legitimizing the property rights of the settlers. Real Estate service providers benefit from modernized, complete and accurate property rights systems most directly. Time and money costs of transactions are reduced, transparency is increased and the risks of legal entanglements are minimized. More effective service results. Urban housing improvement is one area of community development that requires property formalization to allow both public and private investments to be secure. For example, Melmed-Sanjak, et al 1997 in a study on Guatemala's urban squatter settlements, found that IBRD and NGO efforts to conduct housing improvements were halted in wait for the government to formalize the rights of individuals to parcels within the community. While the efficacy of international public organization in housing development can be questioned, the example is still very relevant. If these not-for-profit entities require property formalization, there is no doubt that property formalization will condition private efforts.Historically, private sector involvement in low-income housing development has not reached the poorest strata (rather has targeted the lower middle class strata) essentially for two reasons - avoidance of legal entanglements due to lack of clear property rights and the lack of mortgage finance available to the poorest. Probably, the latter problem will not be resolved in the absence of clearing up property rights problems. Evidence was also found that individuals were more likely to invest their own resources in housing improvement once their property rights were formalized.

Financial Service Uses

Property formalization and functional records management systems are important for the provision of financial services. Both are important from the perspective of primary access to credit (securing loans for consumption and for small or microenterprise activities) and the perspective of capital availability to lending institutions (securitization of loan portfolios/secondary markets participation). Here we will discuss both perspectives.

With regard to primary credit supply, pledging of collateral traditionally was a barrier to access to institutional sources of credit for the small and informal. The introduction of microfinance institutions dramatically reduced this barrier. Microenterprise development programs have demonstrated that the immediate need for credit can be answered without collateral and that specialized microfinance institutions are effective in removing other barriers to credit access (e.g., by offering alternative administration mechanisms and risk management techniques.

However, currently two important limits are being felt. First, the limited dollar amounts of microfinance loans are a damper to enterprise development. Second, the limited coverage of the target population dampens the impact on poverty alleviation (some IADB estimates suggest that only 10% of the potential clientele is currently serviced partly due to limited geographical extension). These two limits imply the need to ‘graduate (MFIs and their clients) and massify.’ Property systems reforms that make collateral-based lending viable will allow microentreprenuers to secure increasingly larger loans (either from MFIs or from commercial banks). As Holden and Rajapatirana (1996, p. 9) state " The exchange of property on the market requires formalized titles, which can be obtained and exchanged with relative ease. In many Latin American countries, a very large percentage of rural and urban real estate property is not tilted. This lack of a clear definition of property rights has a disproportionate impact on smaller businesses and on start-up finance." p.9

Some argue that property rights systems reform that facilitates secondary markets development will allow MFI (as well as other lenders) to leverage more capital and extend more loans. As mentioned in the text section on microenterprise, there are many requirements for this argument to be valid. At this juncture, assume that securitization is a relevant concern for poverty alleviation strategies, albeit indirect.

The importance of property rights systems reform (in conjunction with other types of reforms/8) to securitization can not be understated. The "Joint Ministerial Statement" formulated from the Second Western Hemisphere Finance Ministers’ Meeting (part of the Summit of the Americas process), under the rubric of ‘Securing Long-Term Progress,’ speaks of the need for bettering property rights systems to allow financial market development:

"Property rights and secured lending

In order to broaden access to finance, reforms are needed to facilitate or allow the use of a variety of types of property as collateral in financial transactions, including real property and moveable tangible and intangible assets. This includes: clear and secure property rights; improved systems for titling and registering real property (especially important to enable small property owners access to financing) and improved systems for recording and enforcing security interests." P3

Similarly, in USAIDs draft concept paper on the financial crisis contagion identifies the following policy failures (among others): "… the need to improve transparency and disclosure in financial institutions through high quality, internationally acceptable accounting and audit standards, ….the need to fortify the legal, regulatory, and supervisory environment for securities markets addressing specific operational issues.." It seems implicit that redressing both of these failures must include business and property registry reform (yet, property systems reform is not explicitly mentioned in the concept paper).

An even more clear and strong statement is found in a recent interview of Hernando de Soto with CIPE:

Clear-cut property rights are indeed essential since you can only pledge collateral if you own something. If you give somebody a valid, respected, secure property title, it's really the first step in the securitization process. Let's take the US example, ….at the bottom of these mechanisms is the fact that somebody owns land or other private property can pledge it as collateral. This engenders a great deal of the capital markets in the US and even anchors the rest of its financial system. (8/98, P. 7, CIPE webpage)

In practice, financial sector development programs are recognizing securitization as a goal (e.g., Accion, IADB, ). In some Latin American nations, the banking sector is working to develop of secondary mortgage markets e.g., Davidienda in Colombia, CTH in Ecuador, CIBRASEC in Brazil, and ARGIE MAE in Argentina. Yet while a representative of Fannie Mae pointedly says "No property formalization, no securitization…" these entities are not directing efforts at property rights systems reform.

c. NGO Uses

NGO uses are potentially many and diverse. Just a few examples suffice to illustrate the kinds of uses this group might make of GIS. GIS can result in more effective planning and monitoring, for example, in programs of sustainable agriculture, environmental conservation, and infrastructure development (irrigation, roadways, etc.). Providers of health services and population management programs might combine GIS with demographic and health data to better target and monitor their beneficiaries (e.g., tracking disease trajectories). The draft USAID concept paper on financial crisis contagion calls for "better targeted social safety net programs". It is implied here that the use of GIS in targeting and monitoring by NGOs that work to implement safety net programs would facilitate doing a better job. For example, the work of the Nature Conservancy increasingly uses GIS – witness work with USGS. Finally, certification is an increasingly important issue as small producers enter external markets. Parcel-based certification that facilitates trace-back is being contemplated. Precise definition of parcels is requisite. Technoserve is testing this model with organic coffee producers in Guatemala. All of these ends could be achieved without property registration. However, modern, georeferenced, parcel-based property registry systems would allow easy, low-cost creation of specialized databases.

d. Commerce Uses

The basic object of property formalization is sanctioning the rights ofcurrent and of prospective property owners. That property rights systems reform facilitates the participation of owners in property-related commerce is clear. Transparency, efficiency of markets, dispute resolution is all-important. Additionally, anecdotal evidence suggest that micro and small enterprises moving into extra-local markets (regional and international) will have greater success if their assets are formal -- they will be able to have the paper necessary for legal shipping, they consequently will be more suitable partners for joint-ventures with extra-local capital etc. Finally, experience in North America with property-based GIS has indicated that even the retail sector benefits -- marketing agents, location choice.

e. A Brief discussion of the ‘Intermediaries’ market

The previous sections have illustrated the broad set of ‘end-users’ of parcel-based land information systems. The ability of the users to realize the benefits such systems in Latin America must be created by the development of tools that facilitate easy, cheap and rapid access to the information and documents. In the information era, the modernization of registry data collection and storage is only a first step in improving property rights systems. It is additionally important to realize the potential value-added from the creation and distribution of specialized databases and from the software applications that enable their use. Training and operations design that reform business strategies in light of these new databases availability is another market niche that is developing.

The trend is toward filling these niches with private enterprise managers and GIS specialists in partnership with the public stewards of the basic property records system, e.g., the Teranet experience and that of Dane County, Wisconsin and Montgomery County, Maryland. The trend in North America for the private sector to be more proactive in the development of GIS and modern property records management systems facilitates decentralization of access (real or virtual) and reduce dramatically the costs of access./9


Endnotes:

/1  Several authors address questions about the role of property rights and of the informal sector in the process of economic development. De Soto’s book The Other Path (de Soto, 1986) and the subsequent work of the Institute for Liberty and Democracy (an internationally known Peruvian NGO founded by de Soto to address issues of property informality) dramatized the potential of the informal economy and the importance of comprehensive reform of basic institutions such as those affecting property. More recently, Clague et al (1998) offer a concise statement of the importance of property institutions and cross-country evidence on the impact on economic growth of property formalization.

/2  The Institute for Liberty and Democracy (ILD).

/3  'Property rights systems reform' therefore includes land adjudication, property titling and registration, property registry modernization, complementary judicial and legal reform, and the development of geo-referenced, national cadastres. In many regards, this is parallel to the ILD identification and definition of ‘formalization’ or ‘constructing the formalization system’ as a comprehensive approach to various aspects of a problem which has been historically approached in a piecemeal fashion.

/4  The benefits and costs of becoming formal have not been carefully sorted out. There are many complicated aspects of such analysis. For example, how does one document 'informal taxation' or bribe values?

./5  For example, CARE is promoting and assisting community-based action toward property registration in its biodiversity project in Ecuador. This is beneficial to the community for social and economic reasons and also is allowing CARE to benefit from parcel-based GIS.

/6  Three concerns arise in reaction to the idea of civil society (and, particularly private enterprise) becoming more involved in property rights systems reform. First, is the process neutral to funding source? In other words, will 'quick and dirty' land titling and registration result? Second, will the process ignore the need for public resolution of basic issues in 'sanitizing' land rights - resolving competing claims over land and recognizing customary forms of tenure? Finally, how will community participation in the formalization process be assured? It seems possible for safeguards to be built into an approach based on substantial civil society participation. Also, because there will always be a presence of concessional finance involved in property systems reform, the technical assistance that is packaged with it can be instrumental in addressing these issues.  In IPSIs workshops and research activities, these questions will be given careful attention.

/7  Several Federal Government offices have used their records as well.

/8  Securitization also requires legal reform in several areas: trust law to enable trade, foreclosure and bankruptcy law as well as judiciary reform to ensure enforcement. And, securitization could be impeded by ‘unhappy macroeconomic environment’ that makes capital markets in general risky.

/9  Virtually decentralized access might be a way to circumvent the political obstacles to decentralization of property registration in the LAC region -- maintaining centralized authority. Costa Rica has experimented with remote access set-ups.

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