It’s time Kenyan banks take goats as loan collateral

Customers at a banking hall. FILE PHOTO | NMG 

By GEORGE BODO

More by this Author

Summary

• Traditionally, financial institutions prefer to lend on the back of immovable assets such as your home in Muthaiga, your one-eight plot somewhere in Kitengela or a commercial property within the commercial zones.
• And the rationale underlying this traditional approach is that immovable assets are more secure than movable assets.
• A good number of small and medium enterprises (SMEs) and households are currently facing credit access constraints: and lack of collateral in the form of immovable assets is playing a big role.

If you have been active online over the past two weeks, you must have heard that Zimbabwe is set to allow goats, cows and sheep as bank collateral.

It was such a hot story that a number of leading online platforms picked up the story: from London’s Financial Times, Telegraph, and Bloomberg to even Russia’s RT.

It sounds implausible from the onset, right? Not quite, and I’ll tell you why. But first, it is indeed true that Zimbabwe’s Parliament is working on a Bill—The Movable Property Security Interest Bill, 2016—that will create a Collateral Registry for immovable assets. The goats, cows and sheep story merely externalised the process.

In fact, I went through the Bill and didn’t see any direct mention of goats, cows and sheep.

The story originated from a recent address by the country’s Finance Minister to Parliament in which he insinuated that the Bill, once enacted, would make it much easier for those with movable assets, such as livestock, to get bank loans.

He wasn’t far off the truth anyway. But despite a section of the online community making fun of Zimbabwe, it does make a lot of sense that livestock farmers (including my grandmother), whether large-scale or small-scale, can collateralise their stock for bank loans.

Traditionally, financial institutions prefer to lend on the back of immovable assets such as your home in Muthaiga, your one-eight plot somewhere in Kitengela or a commercial property within the commercial zones.
And the rationale underlying this traditional approach is that immovable assets are more secure than movable assets. For instance, title deeds registered with the lands registry can be presented as proof of ownership-which creates less room for ownership dispute.

Effectively, it is impossible for the borrower to run away with an immovable asset-which enhances the collateralisability of such assets.

This traditional approach to securing loans has always been ripe for disruption. And it’s not just Zimbabwe disrupting it. Zambia just recently enacted a central registry for immovable assets (including livestock), which is now being run by its Patents and Companies Registration Agency (PACRA). And how I wished Kenya was equally moving fast with its own initiatives towards a central registry.

In November 2016, Majority Leader Aden Duale, authored a Bill—The Movable Property Security Rights Bill, 2016—which currently sits in the Assembly. However, according to The National Council for Law Reporting website, it is yet to go through first reading (and largely remains untouched since then).

In Kenya today, we are talking of credit rationing, triggered by the enactment of the Banking (amendment) Act, 2016.

A good number of small and medium enterprises (SMEs) and households are currently facing credit access constraints: and lack of collateral in the form of immovable assets is playing a big role.

Widening collateral acceptability pool to include such movable assets as camels, donkeys, cows, chicken, goats, cars and furniture—because of their ubiquity in this segment can go a long way in helping unlock credit access constraints, especially in an environment where banks are risk-averse and have literally collapsed unsecured lending.

Beyond helping unlock credit access constraint among households and SMEs, insurers (my good old friends) would also benefit since insurance has to be embedded.

Products such as livestock insurance would be at the core of collateralisation of movable assets. So don’t poke fun at Zimbabwe; instead we need to take cue and fast track our own initiatives beginning with Duale’s Bill.