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Cows, crops, chairs collateral unlock 183,000 bank loans

Movable property such as household goods
Movable property such as household goods, livestock and office equipment has helped add 183,487 loan accounts into the banking sector. FILE PHOTO | NMG 
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Movable property such as household goods, livestock and office equipment has helped add 183,487 loan accounts into the banking sector, a Kenya Bankers Association (KBA) report shows.

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 — that are beyond the reach of most Kenyans.

KBA chief executive Habil Olaka says the law has enabled banks to respond to credit needs in the environment of capped interest rates since the register was set up about one and half a year ago.

“The loans that flow out of the banking system on the basis of assets in the register has been growing. This shows that the alternative collateral has started picking up,” he said.

Top lenders such as KCB #ticker:KCB, Equity #ticker:EQTY and Co-operative Bank have embraced the idea, helping bring new customers into the borrowing pool.

Others highly embracing the idea are Commercial Bank of Africa, I&M, Bank of Africa, Standard Chartered Bank, Unaitas, Juhudi Kilimo and Platinum Credit.

Borrowers are required to register their collateral such as household goods, livestock and even the stock in their premises at the eCitizen online platform, under the business registration service. Some 198,873 household items have been registered.

Banks then use the collateral registry to determine the risk profile and subsequent facility for which a client qualifies.

The registry is a departure from the tradition of using immovable assets — primarily land and buildings — that are beyond the reach of most Kenyans.

The KBA shows in the latest Banking Sector Shared Value report that household items top the list of collateral that borrowers have registered as movable assets collateral from May 2017 to date.

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

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

Household items are the most popular type of collateral with 198,873 items having being deposited with various banks since May 2017. KCB, KWFT, Equity and Co-operative Bank are the top banks in lending against these items.

This is followed by motor vehicle where borrowers have used 86,010 cars to get loans from banks and nonbank institutions.

Other popular accounts registered as movable assets collateral include furniture (84,626), equipment (71,396), livestock (27,785), stocks (25,000) and inventory with 19,010 entries in the Business Registration Service.

Borrowers have also registered 6,409 bank accounts as collateral and 4,207 entries made for securities such as shares on the stock market. Crops growing in various farms has also attracted 2,013 entries.

Documents of title that include a bill of lading, dock warrant, dock receipt, warehouse receipt, an order for the delivery of goods (479), consumer goods (455), intellectual property (364) and negotiable instruments (97) are also in the list of other types of collateral that Kenyans have entrusted with lending institutions.

Late last year, the World Bank announced funding Kenya to create an electronic registry to boost access to credit. This is expected to improve the registration and management of movable property registry.

The global lender, through its private investment arm International Finance Corporation (IFC), disclosed in December that it was working with the government and bankers on development of the collateral registry, which is expected be ready by June next year.

Kenya passed the Movable Property Security Rights Act last year to help bank customers without common and costly forms of collateral.

But the late formation of a centralised electronic registry for mobile assets that financial institutions can use to verify the security offered has delayed the full impact of the law.

“The objective of the project is to increase the reach of credit to individual consumers as well as micro, small and medium enterprises, especially women entrepreneurs who are adversely affected by the traditional lending practice that favours physical assets over movable assets as collateral for loans,” IFC said of the funding.

The IFC had committed to using $240,000 (Sh24.57 million) to raise awareness among customers, banks and other stakeholders for early adoption of the electronic registry.

Goods listed in the electronic registry will have a unique identification number that will allow tracking of those that have been used to secure bank loans or collateral.

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