- Business Registration Service (BRS) is in talks with the Saccos to join banks and expand their loans securities to include movable items.
- Currently, saccos lending model use guarantors for issuance of credit. In case of default by the borrower, the amount guaranteed by the guarantor is used to cover part of the loan.
- Borrowers will be required to register the assets as collaterals at the government online platform on eCitizen, under business registration service.
Savings and credit co-operatives societies’ (Sacco) members will soon use household goods, livestock and office equipment as additional security for loans.
Business Registration Service (BRS) is in talks with the Saccos to join banks and expand their loans securities to include movable items.
This is thanks to the Movable Property Security Rights Act 2017 that has enabled banks to diversify collateral from the tradition of using immovable assets — primarily land and buildings — which are beyond the reach of most Kenyans.
“We have an engagement to sensitise and give them awareness on what needs to be done to come into this lending ecosystem,” BRS director general Kenneth Gathuma said.
The law and regulations created a single electronic registry for movable assets used as security for bank loans, which makes it easier for borrowers who do not own land or buildings to also access loans on strength of the movable properties.
Initially, ownership of collateral in the form of movable assets could easily be transferred without a bank’s knowledge, leaving it exposed in case of a default.
Banks have traditionally not accepted movable assets as collateral for loans because of lack of a central database they could log into and make a claim on an asset attached to a loan.
The BRS is the custodian of the movable security items.
Currently, saccos lending model use guarantors for issuance of credit. In case of default by the borrower, the amount guaranteed by the guarantor is used to cover part of the loan.
Tier 1 Saccos, with large assets such as Unaitas and Stima Sacco also accept the movable assets such as motor vehicles and title deeds and shares to give credit.
Sasra chief executive John Mwaka has said the move will have the societies amend their own Sacco by-laws for operationalisation, rather than the industry’s regulations.
“The decision will be on members to ratify their own regulations during annual general meetings and accommodate the changes in their business procedures,” Mr Mwaka said.
Borrowers will be required to register the assets as collaterals at the government online platform on eCitizen, under business registration service.
Mr Gathuma said the societies will act as creditors in order to register security rights of the assets issued by either members or the guarantors.
This would mean rise in interests in competing claims to the assets’ rights in case of default in repayment of loans.
The regulations allows that a borrower can access credit from multiple lenders with the same asset, but the first lender who registered the security right will have priority in event of default.
“The issue of Movable Properties Security Regulations is about priority rights. If they (saccos) register interest in movable asset registry, them it will give them priority among other lending institutions peers when they want to reclaim that particular interest,” he added.
Central Bank of Kenya data showed that Kenyans borrowed Sh43.56 billion from banks using household items, livestock and office equipment in the 12 months to August 2019, a third of the total loans issued by banks in the period.