The Singapore government recently announced the establishment of a scheme that will encourage banks to accept intellectual property rights – including patents – as collateral for business loans. Although scant details have been released, what we do know is that the scheme is set to launch in the beginning of 2014 and will see the government partially underwrite the value of IP in relation to loan security.
However, because of the lack of detail questions remain as to how successful this programme can be. IAM has previously reported on similar challenges faced by China when it comes to IP financing and the same issues may apply here. If the Singaporean government makes the ultimate call on which companies receive financing, there is a risk that decisions will not be founded on market realities. Instead, it could lead to money being made available to companies because the government’s greater goal is to raise awareness of IP as a financial asset. But if these loans are to mean anything significant in the long run, the banks that offer them have to make a commercial decision; to do otherwise ultimately means that the government is really just extending subsidies.
The key issue, then, is how the government and/or banks will evaluate the IP involved. Given the lack of certainty inherent in any IP valuation, the tendency has always been for IP-backed loans to be low value and high penalty on default. To make them an attractive or viable option for companies, that has to change. That means Singapore would need to devote substantial resources to putting in place people with deep IP valuation knowledge, technical expertise and deal-based experience, while also establishing a rigorous and transparent valuation methodology. That’s quite a task – one that if achieved would put Singapore right on the cutting-edge of IP value creation. As neighbour Malaysia has also announced similar plans it could be that over the coming years the IP world will have something important to learn from South-East Asia. Whether that lesson will be a positive one, however, remains to be seen.
Without more details there will be big doubts about Singapore"s IP financing plans
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