It’s official! Commercial banks and other lending institutions in Kenya can now legally register security interests in your goats, cows, camels, donkeys or even high-value household furniture to provide an additional ring-fencing mechanism to their lending activities.
And this has now been made possible by the signing into law, on Wednesday, the Movable Property Security Rights Bill 2017 by President Uhuru Kenyatta. This Bill was sponsored by Majority Leader in the National Assembly, Aden Duale.
Just two weeks ago, I wrote about this—and I said that the traditional approach to lending against immovable assets was always ripe for disruption. However, I initially thought the Bill was far from being signed: I mean when I did a quick check on the National Council for Law Reporting website at the time, it was yet to go through first reading. But shock on me.
Kenya now joins Zambia and Zimbabwe who have both availed a legal framework for collateralisation of movable assets. Kenya’s law also goes beyond the cows and goats and allows a borrower to collateralise future receivables arising from contractual relationships.
So security interests can now be registered on such contracts as long supply contracts with reputable institutions, power purchase agreements, local purchase orders (LPOs) or even intellectual properties such as royalties. All those suppliers who have had a terrible time accessing working capital financing now just need to provide their contracts for a security registration with the Registrar of Movable Assets and voila! Same as livestock owners.
This is a real game changer, to me. However, certain variables are yet to be at full play. First, acceptability among lenders will be another thing. I honestly think lenders have to really consider embracing this as an additional ring-fencing mechanism.
Today we are talking about cherry-picking type of lending by banks. And it’s cherry-picking partly because of (un) availability of collateral. The ability to legally register a security interest in receivables, for instance, minimises chances of funds diversion, especially among the small and medium enterprises (SMEs).
The challenge with SMEs and households always gravitates around a lack of ‘additional comfort’ in the form of immovable asset (such as land) just in case they divert funds. This should then give rise to receivables-backed loans, as a product.
Second, the newly established Registrar of Movable Assets will have to issue a set of guidelines including asset admissibility criteria. I would imagine not every cow will qualify—not the sickly ones of course.
And neither will just any furniture in your living room qualify; certainly not that wooden table you’ve had for the past 15 years. Oh and I forgot that a Registrar will have to be appointed and a Secretariat established and I’m not sure if the Registry will be warehoused within Central Bank of Kenya or the Treasury.
Finally, insurance will have to be embedded to take care of any hum ding of unforeseen calamity. You never know. Consequently, insurers have to ready themselves to play an active role in this.
I also hope this will trigger a de-fixation with land as an investment and instead promote investment in alternative movable assets.