The President signed into law the Movable Property Security Rights Bill two weeks ago.
One of the Act’s purposes is to enhance the ability of individuals to access credit using movable assets. It has been difficult to secure financing without security. This Act will enable a majority of citizens to access credit.
Inasmuch as the law caters for various forms of movable property, in this column I want to narrow down on how intellectual property rights could be used to secure financing.
In the past, I have highlighted that one of the main problems that innovators face is the lack of financing.
A lot of the innovators are young and have not yet acquired immovable property such as land, which has been the traditional form of collateral in Kenya. Financial institutions have also been reluctant to lend to such persons.
The second challenge is that many investors are risk averse. Innovations are mainly done by entrepreneurs, that is, persons who have the ability to take risks and also run with innovative ventures. They are pioneers who are willing to take risks and go where nobody else has gone.
Lenders rarely fund such ventures due to risk aversion and a lack of precedence. I am aware of a few venture capitalists, that is, private individuals and institutions who are willing to lend to innovators. However, such financiers are few and cannot meet innovators’ demand for funds.
I am therefore glad that a new law has been passed to allow innovators get financing against their intellectual property rights. This means that once a person’s concept qualifies as intellectual property and protected, it is possible to get financing against this as security.
However, we wait to see how the provisions of the law will be effected because there is a need to set up institutions to facilitate this.
Again, financial institutions may need to restructure or set up new departments to implement the law. The Act provides for what are known as security agreements which encumber the intellectual property rights in favour of the lender.
Even as the new law is effected a few things need to be considered. Various laws allow for transmission or assignment of intellectual property rights to third parties such that it still is possible to use IPR as collateral under the existing legislation.
The lenders may need to conduct thorough due diligence on the intellectual property rights in question, including valuation to ascertain risk.
There are very few intellectual property rights valuers in the market and the principles of valuation are not well set out.
Intellectual property rights also have limited shelf life. For example, a patent lasts only 20 years and a utility model for 10 years. Nevertheless, I encourage innovators to position themselves to access credit by registering their intellectual property rights.