The Movable Property Security Rights Act, which was assented into law by President Uhuru Kenyatta last year, makes it possible for borrowers to use movable collateral such as furniture, office equipment or household equipment to take loans.
KBA chief executive Habil Olaka says the new legislation had made it “attractive and less risky” for lenders to give loans to Micro Small and Medium Enterprises (MSMEs) due to the registration of security rights with clear priority rules and clear and enforceable foreclosure laws in cases of default.
A deadline requiring commercial banks to record collateral held on all outstanding loans in a single online register lapses Friday, putting into full force a provision that will enable small businesses and households to potentially borrow multiple advances on the same security.
The Movable Property Security Rights Act, which was assented into law by President Uhuru Kenyatta last year, makes it possible for borrowers to use movable collateral such as furniture, office equipment or household equipment to take loans.
Kenya Bankers Association (KBA) chief executive Habil Olaka says the new legislation had made it “attractive and less risky” for lenders to give loans to Micro Small and Medium Enterprises (MSMEs) due to the registration of security rights with clear priority rules and clear and enforceable foreclosure laws in cases of default.
“(It has) addressed lack of bankable collateral which made financial institutions unwilling to extend them credit,” said Mr Olaka in an interview.
The Act created a single electronic registry for motor vehicle logbooks and other movable assets used as security for bank loans – aiming to make it easier for borrowers to maximise the use of such collateral.
“It means that borrowers will be able to use the same assets to secure borrowing from other lenders. In the event that such a borrower defaults with both lenders, the first lender who did not register their security under the new Act will be unable to claim priority of security against the second lender,” said Esther Omulele, an advocate with MMC Africa Law.
Borrowers would before the law be met with big collateral demands that were strenuous to fulfill as banks sought to shield themselves from default.
Now a laptop, printer and even office desk can stand as collateral for a loan product with the biggest beneficiary of this being the MSMEs.
“The introduction of two new forms of collateral: reputational through Credit information sharing and movable, through using the collateral registry are a big leap towards accessing credit for MSMEs,” said Credit Information Sharing Association of Kenya chief executive Jared Getenga.
The Act also provides that in case of default, the registry will also be used to show the lender with the first claim on the asset being disposed.
Banks have until Friday (today) to register initial notices for pre-existing securities as required under a new law, failure to which they will be unable to effect security against third parties competing for similar rights.
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