Integrated Land Administration: Institutional and Technical Challenges David Palmer and John McLaughlin Centre for Property Studies University of New Brunswick Fredericton, NB Canada E3B 5P5 | Abstract Of The Paper & The Profile of The Speaker | Speaker Index | Paper Title Index | Introduction Billions of dollars are spent each year on a huge array of activities related to titling and registering property in developing countries, ranging from aerial photography through ground surveying to the introduction of sophisticated computer technology. These efforts, however, have largely failed to address the fundamental problem associated with property formalization &emdash; the actual transformation of informal into formal property. Even when formal titles have been issued and registered, many of the property rights soon revert to informality as subsequent sales, inheritances, and gifts are not documented in the registry. As much as 90% of rural and 50% of urban property rights in developing countries are not protected by formal property titles. This informal property is often not recognized by the state; even less likely to be forthcoming is recognition by other institutions, such as formal credit agencies, which those in the formal sector of society take for granted. The government agencies and private companies involved have invariably tackled the challenge of property formalization in a piecemeal fashion. They have largely been out of touch with the needs and realities of senior politicians, with the informal sector itself, and with others, such as consumer credit companies, doing business with the informal sector. No wonder the international development community has become increasingly disillusioned with progress to date. There is a desperate need for a fresh, credible approach to the challenge. This challenge is made more difficult by a growing lack of confidence in the development paradigm framed after the Second World War. Despite movements away from the technical positivism of the 1950s and 1960s to the inclusion of grassroots organizations in the 1980s, the paradigm is still driven almost exclusively by a macro-economic agenda. Additionally, the uncertainty of the paradigm has been underscored by substantial shifts such as the switch from "import-substitution" policies to "export-driven" ones. The uncertainties of designing effective development strategies is exacerbated as developed countries themselves struggle to redefine their own post-industrial institutions. While a new paradigm to guide development in the twenty-first century has yet to emerge, innovative approaches to building formal institutions which foster development at the micro-level are emerging. This paper provides an overview of one such approach: the institutional initiatives implemented in Peru to formalize properties rapidly, at a low cost, and on a community-wide basis. Moreover, the low transaction costs of using the new land registry have spurred the development of formal land and credit markets in once informal settlements. To put the Peruvian story in context, we begin with a general review  of the relevance of property formalization to development, describe the role of titling and land registration in the formalization process, and review recent trends and issues in the titling and registration field. We then describe in some detail the land registration system being developed in Peru. Property and Development Starting in southern Europe in the early 1970s, a new wave of democratization spread out to touch countries in Latin America, Asia, eastern Europe, and southern Africa (Huntington 1991). The aftermath was an often radical restructuring of political, economic, and social institutions. As societies reorganized themselves, the nature of their property institutions, and the role that property should play in fostering economic, social, and political development, was reappraised. The "First World" has long defined its relationship between property and fundamental rights using constructs of philosophers such as John Locke and Jean-Jacques Rousseau. Locke, who greatly influenced Anglo-American concepts, saw property as the key to creating a government based on consent rather than on the divine right of the crown. By presenting property as a right that existed before governments were created, Locke built his case to remove the monarchy's legitimacy and to strengthen political power of the landed gentry and rising merchant classes. The Rousseauean tradition in Europe placed less emphasis on private property, recognizing that while people have a right to what they need for their subsistence, that right is subordinate to the overriding claim of the community (Glendon 1991). As the founders of the United States discovered, designing a government to protect both human rights and property rights introduced tensions in a world divided between a rich propertied minority and the property-less majority. For James Madison, the fundamental right to suffrage meant the potential for the majority to protect only those rights in which it had a direct interest and to violate rights of the minority, and in particular, property rights (Nedelsky 1990). One of the ways that the United States responded to these tensions was the passage of the Northwest Ordinance &emdash; the country's "land tenure" legislation that promoted Thomas Jefferson's vision of an agrarian democracy. Jefferson believed that the key to public virtue and political participation lay in a property-owner's economic independence. Given the rapid increase in the population of the United States, property ownership could be expanded only by redistribution (e.g., by abolishing laws of primogeniture and entail) and expansion of its frontiers. This was accomplished by legislation which facilitated efficient economic development, by allowing land to be transferred at low costs, and introduced an efficient system of government (North 1990). The "Second World" responded to property-induced tensions by withdrawing property rights from the propertied class and investing them instead in the state in line with Marx's view that private property was the capitalist instrument of exploitation. At issue here was not necessarily the extent of state ownership; after all, some existing market democracies had considerably higher levels of public ownership than others. Rather, it was the attitude a state took in principle to the legitimacy of private property and enterprise (Fukuyama 1992). Caught in the middle was the "Third World" where political and economic turmoil arose, at least in part, from the concentration of property in the hands of a minority (Prosterman and Riedinger 1987). Yet attempts to redistribute property through agrarian reforms were often strongly resisted by the propertied class who invoked Locke's concept of property as a natural right. While recent movements towards democratization and market economies may have diminished ideological differences across the "East-West" and the "North-South" divisions, there is still a limited understanding of the underlying dynamics of these movements. On the one hand, some suggest that a market economy fosters a democratic society &emdash; creating the space needed for a civil society where individuals, groups, and institutions exist independent of state control (Berger 1990). In contrast, political dissent is costly when citizens are economically dependent on the state. Thus Barrington Moore (1992) pointed to the adoption of commercial farming by the landed aristocracy as an important factor in England's democratic development since it not only removed much of the aristocracy's dependence on the crown, but it also advanced the independence of the emerging merchant class in the towns. Moreover, since a market economy is more efficient than a statist model, it creates greater wealth. Higher levels of well-being, so the argument goes, therefore lead to the development of values and attitudes supportive of democracy (Huntington 1991). On the other hand, some argue that democracy spurs a market economy. From this perspective, England's Glorious Revolution of 1689 is seen as a critical factor leading towards the Industrial Revolution and the growth of the English economy. The political changes wrought by the revolution resulted in an English society having a constitutional monarch, an independent judiciary, and a Bill of Rights, all of which contributed to give people a "high degree of confidence that contracts they entered into would be impartially enforced and that private property rights, even for critics of the government, were relatively secure." (Olsen 1993, 574). An analysis of a more recent event, the development of regional government in Italy, led Putnam (1992) to conclude that it is civic traditions which affect economic development and institutional performance, rather than the other way around. Of course, a successful market economy may flourish under a benevolent dictatorship but, as The Economist (1994) pointed out, not only are such dictators rare, those that exist cannot promise credibly that freedoms created by their policies will last. While cause and effect may be debated, there is an increasing belief that democracies and market economies are closely interrelated. As countries foster market-oriented democracies, the institutions of property are being reappraised. Property, of course, has always had a social basis; that is, a society accepts some set of norms concerning property. These norms are not fixed but change over time; new property rights are created when the benefits of doing so exceed the associated costs (Demsetz 1967). Norms accepted by society have legitimacy because they are enforceable. Historically, property rights came through hegemony; legitimacy rested on force. The twin pressures of democratization and market economics are now underscoring the validity of recognizing property arrangements that have origins in a broader social base. Thus in a democracy or market economy, the state's role is not to mandate ownership but to assist in managing the social record of ownership. Property Formalization As countries move towards market-oriented democracies, they recognize in principle that their citizens may hold property. In practice, they often fail to recognize many property rights already held by their citizens. In Peru, for example, about 90% of rural parcels and 60% of those in urban areas are informally owned (de Soto 1993). Property may be informal because it is illegal, i.e., it is held in direct violation of the law. This may be as blatant as occupation of a site in contravention of an eviction notice. But frequently rights may be illegal simply because of inappropriate laws. For example, the minimum size of a farm in Peru was set at 3 hectares by bureaucrats - a person holding a smaller rural parcel could not be officially recognized as the owner. Property may also be informal because it is extra-legal. Here, property rights may be held with the tacit consent of the state even though formal acknowledgement is withheld. As migration to urban areas increased dramatically, successive Peruvian governments conceded defeat and stopped removing squatter settlements on vacant state land surrounding Lima. The new city dwellers might live unharrassed by the state, but their property still lacked formal recognition for reasons ranging from political paternalism to bureaucratic inertia. Regardless of their origins, informal rights do not exist merely because someone claims them. Instead, people within the informal community agree among themselves as to where and how each can exercise these rights. The social basis of informal ownership is clearly defined. In large measure, people are encouraged to operate in the informal sector when the costs of legal transactions increase as a result of the failure of institutions to facilitate exchange and enforce contracts (de Soto 1989). But lack of legal recognition of their property rights makes those in the informal sector "second-class" citizens. A number of hypotheses have been put forward in favor of formalizing property. Many of them are interrelated, sharing the belief that property interests must be made easy to identify and verify, that there must be legal certainty that a person's rights will be protected against unlawful acts of others, and that the results of legal actions must be easy to forecast (Johnson 1972). They include, for example: Assurance: The more clearly a person's property rights can be defined, the more easily that person will be able to defend those rights against the claims of others (Johnson 1972). Social stability: Accurate public records prevent some disputes from arising, and help to resolve others more quickly since property ownership and boundaries can be readily ascertained (Simpson 1976). Credit: Accurate public records reduce asymmetry in information by allowing creditors to determine more easily if a potential borrower has the right to transfer property offered as collateral (Feder and Feeny 1991). Improvements to the land: Enhanced assurance of property rights increases the certainty that a person will be able to benefit when making investments in buildings, equipment, infrastructure, land conservation measures, etc. Improved access to credit provides financial resources for improving the land (Feder et al. 1988). Productivity: The factors described above combine to ensure that land goes to its highest and best use. As a result, for example, commercial agriculture is adopted by innovative and energetic farmers who are able to acquire more land; bad farmers end up holding less land (Swynnerton 1955). Liquidity: When property rights are formal, assets can be exchanged rapidly on a massive scale and at low cost. In developing countries, most property rights are held informally and so cannot enter the formal marketplace as negotiable assets (de Soto 1993). Labor mobility: Opening up land markets facilitates geographical mobility of the work force; people are able to move from their land to benefit from social and economic opportunities offered elsewhere (OECD 1986). The ability to defend rights legally rather than physically allows people to leave their land to take advantage of short-term opportunities. Property values: Improvements to the land and improved production are reflected in higher values. Increased labor mobility and liquidity allow values to be defined by the market rather than arbitrarily. Clearly defined property rights reduce the costs of discovering who holds rights to a parcel of land and what the scope of those rights are. Lowering the cost of reducing information asymmetry increases the incentive for potential buyers or leasees to make a higher offer for the property (Johnson 1972). Property taxation: Increased value of the land and clearly identified owners makes the collection of property taxes feasible (Dorner 1991). Public services: Increased revenues from taxes, together with better information about the land, enable governments and utilities to provide more effective services and utilities (Cymet 1992). Infrastructure such as street lighting, paved roads, and water and sewerage in turn raise property values. Resource management: Increased information about the land and property rights allows public agencies and private corporations to plan the management of resources more effectively, and enables governments to enforce environmental and other regulations (McLaughlin and Nichols 1989). While these benefits of formal property are clearly evidenced in the West, they have been largely unobtained in developing countries despite billions of dollars being spent on titling and registration projects by multi-lateral financial institutions, western aid agencies, and the countries themselves. Frequently, unsuccessful attempts to formalize property replaced local property rules with foreign ones. In particular, titling and registration projects in developing countries are invariably associated with individualization of private property using processes and mechanisms imported from outside. This has arisen in part from a form of institutional imperialism: western consultants and aid organizations tend to export systems with which they are familiar. As North (1990, 101) shows, imposing similar rules in societies with different institutional arrangements leads to widely divergent outcomes: "although the rules are the same, the enforcement mechanisms, the way the enforcement occurs, the norms of behavior, and the subjective models of the actors are not." But as Simpson (1976) argues, to formalize property rights is not to change the customary property system: adjudication recognizes existing rights but does not create new ones, and registration is merely a device to give certainty of ownership of land and to enable dealings to be conducted quickly and cheaply. Although often cast as a proponent of the "westernization" of indigenous property rights, Simpson offers provisions for registering family (or group) rights and "customary land". In practice, an informal property system can seldom be legislated away in favor of a formal one&emdash;creating a new legal structure adds layers of procedures on to others which are unlikely to disappear (Shipton and Goheen 1992). The resulting tension between formal and informal rights to land may actually reduce overall security and increase the number of disputes (Haugerud 1989). For if left alone, informal property systems may provide considerable security of tenure (Migot-Adholla et al. 1991) and facilitate some efficiency-enhancing transfers among community members (Binswanger and Deininger 1994). Furthermore, credit may not flow as easily as expected to newly formalized property owners; lack of robust banking systems restrict the ability of commercial banks to make loans, while credit from state-controlled banks is often diverted to those with political influence. This sorry state of affairs has led some to conclude that the human, technical, and financial resources required to establish and maintain a formal system of land administration in a developing country may be better applied to other important sectors or activities (Attwood 1990). Yet there is evidence from countries like Peru that benefits can accrue when laws are made to fit everyday life and not the other way around, and when costs of formal transactions are cut. Over a seven-year period, the Instituto Libertad y Democracia (ILD) a Peruvian non-governmental organization, identified informal institutional arrangements (particularly those governing informal property) that had come to be accepted by the rapidly growing informal sector in Lima. After analyzing legal and bureaucratic obstacles which impeded formal recognition of informal rights, the ILD drafted a series of institutional reforms which incorporated informal proofs of ownership into the formal legal framework without threatening the security enjoyed by those holding formal property rights. Moreover, it designed an efficient registry system (Registro Predial) to register newly formalized property and subsequent transactions. After these reforms had been signed into law, the ILD tested them by formalizing over 150,000 parcels during 1990-93. Using its methodology for property formalization (called PROFORM), the ILD mobilized informal communities to collect information on informal property rights rapidly and on a massive scale. These property rights were registered in the Registro Predial after they had been validated by the ILD's legal and technical consultants (McLaughlin and de Soto, 1994). Seeing that a formalized property system with low transaction costs created a demand for its services, a commercial credit company supplying building material began to finance the creation of more formalized property through a cooperative agreement with the Registro Predial. By July 1995, more than 230,000 parcels had been registered in the new system. Land Administration In the discussion thus far, the term "property" has been used in a broad sense, covering both personal and real property. In the remainder of this paper, property is treated more narrowly and refers only to property in land. (Land is regarded here to include surface, subsurface and supersurface derivatives such as ground water, minerals, and air parcels.) In doing so, we focus on the single largest asset held by families in developing countries; property rights in land represent about 70% of a family's wealth (de Soto 1993). These property rights, together with duties and powers, comprise a dense network of intersecting interests including: overriding interests: e.g., the powers of expropriation held by the state; overlapping interests: e.g., use of a parcel by more than one party through rights of ownership, easements, and leases; complementary interests: e.g., rights held by several parties in the same property such as party walls and common areas in condominiums; and competing interests: e.g., when different parties contest the same interests in the same parcel. Property interests in a society may thus include a broad set of enforceable claims which are defined by its land tenure system. The precise form of tenure arrangements is constituted by the rules and procedures which govern rights and duties of individuals and groups in the control of basic land resources (Dorner 1972). Land administration helps transform land tenure and land policies (which define how resources and benefits are to be allocated) into land management, i.e., governance of society's spatial environment (see Figure 1). Whether formal or informal, land administration comprises an extensive range of systems and processes, some of which are closely linked with land tenure, and others which fall nearer to land management. It includes functions involved with regulating the development and use of the land; gathering revenues from the land through sale, leasing, taxation, etc.; and resolving conflicts concerning the ownership and use of the land (Dale and McLaughlin 1988). These functions may be categorized into four components: juridical, regulatory, fiscal and information management. The juridical component places greatest emphasis on the holding of rights. It comprises a series of processes concerned with allocation of land, for example, through original grants from the sovereign power, transfers, prescription, and expropriation. Other processes address the delimitation of parcels by defining the land for which the rights are allocated, demarcating boundaries on the ground, and delineating those boundaries graphically, numerically, and/or in writing. Over time, the allocation and reallocation of rights to land and the delimitation of parcels may result in doubt or dispute. Adjudication is the dispute resolution process; registration is the process of making and keeping records of property rights. The regulatory component is mostly concerned with the use of the land and its resources. It comprises a set of interests which do not typically appear in a registration system, for example, land use restrictions imposed through mechanisms such as zoning and the designation of special areas ranging from historic districts to fragile ecosystems. The fiscal component focuses on the economic aspects of the land. Its processes may be used to implement policies to increase revenue collection and production, and they may act as incentives to consolidate or redistribute land or to use land for particular purposes. Information management is an integral part of the three components described above: the juridical cadastre underpins land registration; the fiscal cadastre supports valuation and taxation; and zoning and other information systems facilitate planning and enforcement of regulations. Increasing recognition that these components share common information requirements led the National Research Council (1980, 1983) in the U.S.A. to promote the concept of the multipurpose cadastre &emdash; a community-oriented, parcel-based system for integrating land-related information collected and managed by different agencies. More recently, information has been viewed as a resource in its own right; a commodity with its value defined in terms of market demand. Growing importance is being attached to the development of an information infrastructure enabling users to add value to information. The effect of this infrastructure is to move land information beyond the internal support roles it plays within the juridical, regulatory, and fiscal components. Land Registration A land registry has the exclusive mandate to register documents pertaining to a set of property interests. While the combination of rights registered may vary from one jurisdiction to another, they invariably embrace rights associated with ownership; charges, such as mortgages; and liens. Land registries have typically been viewed as complex and archaic Dickensian back-water operations. They are often seen as being captive to their professional clients: regulations are set in place, not to protect the public, but to protect existing privileged positions (Stigler 1971). As well, they have had little policy significance, and provided little opportunity for serious revenue collections. This is beginning to change as jurisdictions look towards reengineering registration functions, integrating those functions with other property-related functions, and running the registries in a more businesslike fashion. Reengineering the registration function "Reengineering" is the redesign of an organization's processes, essentially reinventing the way in which the organization operates in order to meet new demands (Hammer and Champy 1993). The reengineering of land registries has focused on four closely related sets of reforms shown in Figure 2. Legal reforms focus on modernizing, standardizing, and simplifying legislation relating to property and registration. In Anglo-American jurisdictions, for example, much attention has been given to simplifying and codifying the thousand-year history of real property dating back to the Norman conquest. In general, registration law reform has included introducing standardized forms, reducing the number of overriding interests (i.e., rights that do not have to be registered to impact on the property), making registration compulsory, and converting indexes based upon names into parcel-based indexes. Other legislation subject to reform includes statutes of limitation (which prescribe the time period required for prescriptive rights and the notice period accompanying initial registrations); mining laws (defining how and where mining licenses and leases are to be registered); and rules of evidence (prescribing what evidence can be used to serve as a security right). Judicial reforms seek to clearly set out the most appropriate role for the judiciary (e.g., by giving more responsibility to administrative officers and tribunals), to standardize and formalize judicial procedures, and to introduce concepts and procedures for accountability. A recent Canadian example is the replacement of judicial processes with administrative tribunals for the resolution of property boundary disputes. Administrative reforms include simplifying procedures for receiving and examining documents; introducing risk management principles in the examination process; minimizing duplication; and using professional and support staff more effectively. Technical reforms address issues such as introducing computer technology. Computers began to be introduced into western registry systems around 1970 (the most often referenced pioneers of the period being Sweden; New South Wales, Australia; and New Brunswick, Canada). Computers were introduced to support the accounting function, to assist in the examination process (especially in reviewing survey plans), to prepare automated indexes, and finally to develop automated databases. Microfilm technology served to provide a secure backup record of documents in the registry; this function is now often managed using optical scanning technology. The most technically advanced registries now provide on-line computer access to property records (containing information about the legal owner(s), address, current interests, charges against the property, legal description, and references to off-line digital storage for more detailed documentary material). Integration In addition to reengineering the function and operation of the land registry, there has been for some time an interest in integrating registration with other property-related functions. Stimulated by the prospects of automation, the case for integration has been made in terms of cost savings through economies of scale and minimizing of duplication; more effective service to the public through "one-stop shopping"; and potential synergies among the various property agencies. These are expected to arise through: a simple sharing of physical facilities by different property agencies; the sharing of staff, for example, front desk staff who receive documents and fees; the sharing of data with individual agencies given primary or "custodial" responsibility for selected data, e.g., the land registry might be responsible for the parcel identifier, owner's name, and current legal status, while the property assessment agency may be responsible for information about improvements to the property and its asset; the sharing of common functions (such as the use of common forms) and procedures for similar functions; and the sharing of a common database environment, for example, by using standardized inquiry and communications software to provide access to a family of databases. One of the more successful examples of integration is in the Canadian province of New Brunswick where the provincial land registry, property mapping and topographic mapping, personal property registry, and property assessment functions have been made the responsibility of one agency, the New Brunswick Geographic Information Corporation. Previously, each one of these functions had people and facilities assigned exclusively to it. The agency now shares these resources throughout the province, has developed common standards for data, and is moving towards an integrated database environment. In general, however, progress towards integration has been slow, largely because of history and turf battles. The various registries have long institutional histories, their own constituencies and professional and technical perspectives, and they often have made significant investments in automation to address their specific requirements. Given this, a more limited alternative has been to provide jurisdiction-wide on-line access to networks which provide query capability to the various databases and some transaction capability. These networks extend beyond real property-registry databases to those dealing with personal property, motor vehicles, health care, tax collection, etc. Business models In recent years, attention has also been given to streamlining the costs of running the registry, enhancing the revenue capabilities, and requiring a more businesslike operation. Three models have emerged to date. Reformed state agencies (e.g., New South Wales Land Titles Office) still operate within a ministerial environment, but their chief executives are charged with meeting established targets for revenues and expenditures and they are held accountable for the outcome. Government corporations (e.g., New Brunswick Geographic Information Corporation) have more independence (with their own board of directors and multi-year business plans) although they are ultimately responsible to their shareholder, the government. Private utilities (e.g., Teranet in Ontario, Canada) may consist of a private company or a public-private sector partnership. In either case, private capital is invested in improving the registry function and it is then run as a private business for some agreed upon period of time (e.g., ten years). It functions as a regulated utility in the sense that the government retains some control over the structuring of fees and has ultimate public custodial role for the registered documents. Land Registration: The Peruvian Case Study This section explores one response to the issue of development and land registration: the creation of a new registration system in Peru to cater to the needs of poor residents of informal settlements and, increasingly, to institutions that grant credit to them. By reengineering the registry processes, the new system significantly cut the time and costs required to transform informal into formal property. Reengineering also created incentives to keep this newly formal property in the registry system by reducing costs of subsequent transactions such as registering sales and mortgages. Beginning in the 1950s, Peru has encountered dramatic urban growth, much of it attributed to migration from rural areas. As people flocked to the cities, especially Lima, informal settlements developed at a rapid pace; such settlements scarcely existed in Lima in the 1940s. In 1972, one-quarter of the population was informal (Collier 1976), and by 1985 some 69% of housing stock was informal (de Soto 1989). Many of these informal settlements occurred on barren state land surrounding the old city of Lima. These settlements, although informal, were often planned well in advance by leaders of the invasion. The site to be invaded was selected according to criteria such as topography, access, and the ease with which the land could be secured. Leaders recruited families to participate in the settlement since a large population at an early stage reduced the risk of eviction. Plans showing streets and parcels for residences, open spaces, and public buildings were drawn, often by engineering students, and members of the group were assigned their parcels. The date for the invasion was often a civil or religious holiday, thus giving the settlers time to consolidate their position. On the night of the invasion, street and parcel boundaries were marked on the ground, and families began constructing their shelters using straw matting. As soon as possible, residents built brick walls along the parcel boundaries to avoid disputes. Over the years, residents would replace their straw houses with ones of brick as their level of security increased and in accordance with their financial and labor resources and priorities. People bought and sold these parcels using informal titles. These settlements were administered by democratically elected local leaders long before Lima's formal local governments were similarly elected. An informal settlement's local government was responsible for internal matters, such as land administration (including recording holders of property rights in rudimentary registers) and initiating community improvement projects (e.g., building schools, community centers, and roads). In addition, it represented the settlement in any dealings with the police and in attempts to win formal recognition for the settlement from government agencies (Mangin 1963, Turner 1963, Andrews and Phillips 1970, Lloyd 1980, de Soto 1989). Beginning in 1961, the Peruvian government passed a series of laws aimed at legalizing existing settlements and allowing people to gain formal recognition of their informal rights. An informal settlement attempting to become formal follows the reverse order of processes used to develop a formal settlement. In existing formal areas, title to the land is legally acquired, houses are built, services are provided, and the residents move in. In informal settlements, residents occupy the land first, build their houses, slowly acquire services, and finally receive their titles (Turner 1967, Lloyd 1980, de Soto 1989). There is, however, a complex relationship between building a house and acquiring interests in the land; the greater the feeling of security enjoyed by a family, the more inclined it is to invest in home improvements, while at the same time having a robust house lessens the risk of eviction since it is harder to destroy (Andrews and Phillips 1970, Collier 1976). Although Peruvian legislation was progressive compared to that of other developing countries, the formalization process was costly, complex, and time-consuming. An applicant could wait twenty years before receiving title from the government (de Soto 1989). Furthermore, titles were often unregistered in the land registry (Registro de la Propiedad Inmueble) because of its burdensome registration requirements and because titles granted by the state were frequently flawed and lacked the legitimacy demanded for participation in the formal sector, for example, for use as collateral (Turner 1981). In the mid-1980s the ILD identified informal property institutions and legal and bureaucratic obstacles preventing formalization of rights recognized by informal communities. Based on this analysis, the ILD drafted a comprehensive reform of 175 laws and 2000 regulations that impacted the property formalization process. Moreover, the ILD designed an efficient registry system (Registro Predial) for registering newly formalized property rights and subsequent transactions. A set of reform laws and regulations drafted by the ILD became effective between 1988-90. The ILD tested the reform by formalizing 150,000 parcels between 1990-93. The reform reduces the costs of making informal parcels formal in the first place. It widens the door to formal society by recognizing certain proofs of ownership used in informal communities. It makes the process more efficient by enabling all property holders in a community to formalize their properties at the same time by using common maps and simple forms. The reform reduces a bottleneck, caused by having a small number of registry officials examine documents, by enabling private sector lawyers and engineers to take responsibility for verifying a document's legality before it reached the registry office. Reform allows ownership and boundary information to be managed efficiently using a low-cost, parcel-based computer registry system. The ILD used its knowledge of informal communities to mobilize residents, thus allowing property information to be collected efficiently. Since information was collected openly from all community members at the same time, people had the opportunity to scrutinize claims made by others. The ILD's legal and surveying verifiers inspected information collected from the informal communities along with existing legal documents obtained from government archives. By reconciling discrepancies and redrafting documents, the ILD helped agencies to produce high-quality titles and plans. Because the issue of quality control was addressed at an early stage, these high-quality titles could be registered in the Registro Predial without having to follow extensive security precautions. This cooperation did not come easily at first due to turf-battles and other problems, but once the agencies saw the political value of handing out titles that could be registered without delay, they worked closely with the ILD and Registro Predial. The reform also reduces costs of registering formal transactions such as mortgages, sales, etc., thus providing an incentive for newly formalized properties to remain formal. It eliminates cumbersome and costly requirements of transfer like certificates from municipalities regarding payment of taxes and from notaries. Short, simple standard transaction forms reduce ambiguity encountered in older multi-page, unstructured documents. The computerized parcel-based registry further reduces information asymmetry by enabling ownership information to be determined in a matter of hours as opposed to months in the Registro de la Propiedad Inmueble. Furthermore, property transactions can be completed in a week in the Registro Predial compared to 6-9 months in the other registry. In addition to simplifying registration procedures and reducing their costs, the reform increases the level of security enjoyed by lenders who provide loans secured by mortgages. Over 37 commercial, state, and non-governmental organizations have extended credit secured by mortgages registered in the Registro Predial. The case of Peru emphasizes the importance not only of providing access to registered title but of doing so efficiently. Credit in developing countries is often given in small amounts (e.g., under $1000) and for a short time (e.g., less than a year) since a person's income (i.e., ability to repay the loan) is as much a factor as any collateral offered. If the registry system is inefficient, the costs of registering a mortgage will be a high percentage of the loan. Furthermore, delays in the registry office may result in the loan being repaid before the mortgage has been registered. As a system grows more efficient, it becomes cost-effective to register smaller mortgages, and thereby also increases the incentive that future changes in ownership will be registered. By providing an efficient, effective registry, the Peruvian reform stimulated growth. As described earlier, homes in informal settlements start off as flimsy dwellings made of straw matting; in the past, because credit was scarce, residents waited years to save the cash needed to buy bricks, cement, reinforced steel, and other supplies. One lender, a supplier of building materials, now provides credit secured through registered mortgages to enable newly formalized owners to improve their homes today. Recognizing the potential business arising through wide-spread registered ownership, that lender is now financing the creation of more formalized property through a cooperative agreement with the Registro Predial. Summing up The role of property in fostering good governance, robust economies, and strong civil societies has received fresh attention in the wake of the dramatic global changes that have occurred during the past two decades. Many governments and commercial organizations in developing countries, however, tend to formally recognize only property rights of the rich and politically influential; the poor in the informal sector are excluded from benefits enjoyed by those in the formal sector of society. When the law allows those in the informal sector to formalize their property rights, the high transaction costs of doing so (and of keeping subsequent transactions formal) frequently result in economic discrimination. It is clear that to have legitimacy, newly registered property rights must reflect the social consensus of communities. Moreover, benefits of formal property expand and reinforce one another once a "critical mass" of parcels and ownership rights have been formalized, and when costs of formal transactions are low enough not to act as a disincentive. For example, consumer credit companies lending to the poor will continue to use informal mechanisms to manage risks when formal property holders comprise a small portion of their client base. As the number of formal owners increases, these companies begin to consider changing the way in which they do business. Since loans to the poor are small and for a short period, however, registry systems must be efficient if formal mechanisms, such as mortgage registrations, are to be cost-effective alternatives. Among the challenges faced by the international land administration community are to develop innovative cost-effective ways to formalize property rights rapidly and on a massive scale in order to reach the critical mass needed for self-sustaining growth. As well, institutions necessary for the efficient on-going administration of property interests must be set in place. 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A discussion paper on the question of government intervention in urban settlement types. In The Residential Circumstances of the Urban Poor in Developing Countries, United Nations Centre for Human Settlements, New York: Praeger Publishers, 220-238. NOTE: This paper has been accepted for publication in the ITC Journal, Spring 1996. Figures Figure 1. The Context for Land Administration   Figure 2. Reengineering of Land Registration Systems. | Abstract Of The Paper & The Profile of The Speaker | Speaker Index | Paper Title Index | CGIS HOME PAGE CONTENTS