Loans issued against cows, TVs, stocks rise 61pc in first six months

The number of loans issued against movable assets such as household items, crops, livestock and bank accounts increased by 61.1 percent in the six months to June, indicating reduction in risk tied to this class of property by lenders.

Data from Companies Registry show Movable Property Security Rights (MPSR) notices – notices lodged by banks and microfinance to secure interest of a movable collateral in order to issue loans - were recorded at 58,287 in the half year compared to 36,176 notices made in the same period last year.

The 58,287 notices had increased by 28.0 percent from 45,549 registered in six months to June 2019.

The total number of notices recorded in the financial year ended June were 102,637 up from 101,368 in the financial year ended June 2019.

This follows the MPSR Act 2017 protecting lenders using the personal assets in case of default.

Banks, microfinance, individuals and other secured creditors are required to register personal assets such as television, cows, maize in the farms, stock in a business premise as collateral under e-business registry, Business Registration Service (BRS) as a way of securing interest before issuing the loan and gaining priority over other creditors.

The notice acts as a public notification to any other entity interested in the collateral, showing that there is a prior interest and if they choose to lend against the same collateral, they will become second or third in priority in the event of default.

The notice includes details such as the guarantor or owner of the asset, the borrower, period of effectiveness of the loan and amount of loan secured.

The BRS showed the number of searches made by creditors before registration of the assets also increased by 53.5 percent from six months last year to 10,281 in the same period this year.

The Act was meant to move away from the use of traditional use of immovable assets such as land and buildings to access credit, denying loans to individuals and small enterprises that lack high-value properties.

MORE THAN DOUBLE

Household items are the most popular collateral used by borrowers with 427,429 items having been registered with creditors as at June from 198,873 as per data released in 2019.

This is followed by motor vehicles with 206,069 cars use, an increase from 86,010 in 2019.

Other movable assets that have been registered as collateral include furniture (177,377), equipment (137,493), livestock (58,048) inventory (33,317), stock trade (54,421) and bank accounts (11,896).

The Act also accommodates individuals working in the creative industry who can value their assets and obtain loans against them.

For example, a musician can demonstrate to a bank that they have performance contracts lined up and are assured of cash flow to enable them to service the facility they seek.

BRS data shows intellectual property registered were 1,115, a jump from 364 in the previous data. Crops on farms registered as collaterals also increased to 3,959 from 2,013.

Securities were 5,987— documents of title that include a bill of lading, dock warrant, dock receipt, warehouse receipt, an order for the delivery of goods (969), consumer goods (820) and negotiable instruments (228) were also registered as movable assets.

“More untraditional properties are being used as collateral. This demonstrates credit diversification,” BRS stated.

TOP LENDERS

As at June, 1,063 entities had been registered as creditors indicating reduction of risk viewed on the assets especially individuals, banks, saccos, credit firms, insurance firms and capital securities.

Kenya Women Microfinance, Equity, Co-op and KCB account for the top creditors with the biggest loans stock under the assets.

The lenders have recorded 84,907, 80,741, 30,436 and 25,514 notices respectively.

Others include Platinum Credit, NIC, Sidian, Family Bank, Stanbic and Faulu.

“More secured creditors are now confident with the new secured transaction law. This is because the registering a security right aids to mitigate the risk of loss resulting from default in payment by entitling the secured creditor to claim the value of the assets encumbered by the security rights back-up source of repayment in preference to the claims of the grantors’ other creditors,’’ said Shighadi Mwakio, deputy registrar MPSR.

The Movable Property Security Rights Act was enacted in May 2017, allowing access to credit especially to micro and small enterprises and low-incomes earners.

The Act followed at a time when bank lending to SMEs had dropped due to higher risk profiling and lack of collaterals among the sector over the reduced scope of security instruments.

It was meant to enable borrowers to use their personal property as collateral, previously not allowed.

Borrowers can use one collateral to access multiple loans or several assets for one loan.

The report shows 5,252 micro enterpises, while small (5,127) and medium (2,601) firms have used their movable assets to access credit.

More individuals are using movable assets to obtain credit with over 400,000 having registered their assets.

In a report by Financial Sector Deepening, as of the end of January 2019 there were 183,487 loans registered on the Moveable Assets Registry worth Sh3.65 trillion ($36.5 billion).