Hong Kong promotes borrowing using Intellectual Capital

In an earlier posting, I mentioned Hong Kong's new Intellectual Capital Management Consultancy Programme. Run by the Intellectual Property Department, the Innovation and Technology Commission and the Trade and Industry Department, the Consultancy Programme provides a free service to businesses, especially SMEs, to help them understand and manage their intellectual capital (IC). The service works with the company to identify and assess their and create a simple IC report. The service also covers intellectual property policies and procedures.

Last month, they announced a new partnership with Hong Kong banks to use those IC reports in lending decisions. The five Partnering Lending Institutions (PLIs) are the Bank of China (Hong Kong) Limited, Chong Hing Bank Limited, Citi Commercial Bank, Hang Seng Bank Limited, and the Bank of East Asia Limited. As the announcement notes:

The banks will offer more favourable financial and/or service privileges to successful business loan applicants who have prepared their own intellectual capital reports.

This is the first time I know of that banks will systematically recognize the information from IC reports in their lending decisions. While the banks will still require the standard documentation and conduct the normal credit assessment, this could be a major breakthrough in how intellectual capital and intangible assets are handled on a routine basis. Our earlier report (Maximizing Intellectual Property and Intangible Assets: Case Studies in Intangible Asset Finance ) described how some financial institutions utilize intellectual property in the financing decision. But those were essentially hand crafted deals. The Hong Kong program has the potential to create the much needed standardization in the process.

Something we need to keep an eye on -- and learn from.