Creditors’ Rights in Asia Pacific

If return of capital is more important than return on capital, Australia, Hong Kong and Singapore score highly as they have the best creditors’ rights in Asia Pacific.  By contrast, Indonesia and Philippines score poorly on a rough effective creditors’ rights index.

I have calculated a rough effective creditor rights index (0-10) based on the average of the legal rights index (degree to which collateral and bankruptcy laws protect rights of borrowers and lenders) and the resolving insolvency index based on World Bank’s Doing Business data.  Although a country may have strong legal rights, execution (as reflecting by insolvency resolution) may be quite poor effectively diluting the legal rights (India is a good example).

As expected, Australia (10), Hong Kong (10) and Singapore (10) have the best effective creditor rights in the region, and Japan (9), Korea (9) and Malaysia (9) also score highly.  As mentioned above, India’s effective creditor rights (6) are low as weak insolvency resolution (4) dilutes the relatively strong legal rights (8).  China’s effective creditor rights (6) are similar to India as better insolvency resolution (6) offsets relatively weak legal rights (6).  Indonesia (3) and Philippines (3) have the weakest creditor rights in Asia according to this data.