Bill: Kenyans can use crops to secure loans

Kenyans will soon borrow from commercial banks using such movable assets as machinery, livestock and crops as collateral if a new Bill from Treasury comes into law.

The Movable Property Security Rights Bill (2016) intends to help borrowers get financing from lenders using such movable assets as crops, livestock, machinery and inventories as collateral.

According to the National Treasury Cabinet Secretary Henry Rotich this will go a long way in making credit affordable for millions of Kenyans who have not been able to access credit for lack of fixed assets such as land and buildings which have, in most cases, been used as collateral.

To this end, the Government is in the process of creating an electronic collateral registry where borrowers would register trusts and collateral to secure credit facilities provided by lenders, said Rotich in his Budget speech last Wednesday.

“Mr Speaker, the Government continues to implement measures to address the high cost of credit and to expand access to credit in the economy. We have developed the Movable Property Security Rights Bill, 2016 which provides for borrowing using movable assets as collateral, for enforcement of security rights by lenders and protection of borrowers using such collateral,” said Rotich in his budget statement.

movable assets

“In addition, we are developing the electronic collateral registry where lenders will be able to lodge their security rights on specific collateral through an online platform.”

Known as the collateral registry, the online platform will be a public database that will allow financial institutions to register security interests in movable property, and mitigate the risk of customers. The lender and borrower shall enter into a security agreement which shall result in the creation of a security right.

According to the bill, a security right is a property right in a movable asset that is created by an agreement to secure payment from a creditor such as a commercial bank. Borrowers can also create a security right on a chattel mortgage, credit purchase transaction, credit sale agreement, floating and fixed charge, pledge, trust indenture, trust receipt, financial lease and any other transaction that secures payment or performance of an obligation and an outright transfer of a receivable.

Besides enhancing the ability of individuals and entities to access credit using movable assets, the bill will also promote consistency and certainty in secured financing relating to movable assets.

The World Bank has been at the forefront championing this concept which has since been implemented in China, Liberia, Ghana and Malawi.

According to the Bretton Woods institution, the concept has already bore fruits in these countries. In Liberia, farmers and entrepreneurs have been able to securitise movable assets with which they have acquired loans. About $227 million (Sh23 billion) in loans have been registered since 2014 when the registry was launched in the country.