Electronic registry to verify loan seekers’ assets

Cars are the most common assets used to secure short- term loans. FILE PHOTO | NATION 

In Summary

• Potential borrowers to electronically register their farm equipment, livestock, durable consumer products like televisions and refrigerators, intellectual property as well as motor vehicles on the database.

By MARYANNE GICOBI
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Kenya has created an electronic registry for movable collateral that will help lenders search for credit information on both loan seekers and proposed assets to act as security.

In an advertisement in the Kenyan dailies, the Attorney-General gave step-by-step instructions. Potential borrowers will electronically register their farm equipment, livestock, durable consumer products like televisions and refrigerators, intellectual property as well as motor vehicles on the database.

The electronic registration is part of the Movable Property Security Rights Act 2017 which became law last year, and paved the way for the formation of a centralised electronic registry for mobile assets that financial institutions can use to verify the security offered.

The law had proposed the establishment of an Office of Registrar and the appointment of a registrar to “receive, store and make accessible to the public information on registered notices with respect to security rights.”

These rights, which also include deposit accounts and electronic securities are listed in the registry using a unique identification number that allows tracking of those that have been used to secure bank loans or collateral.

However, implementation of the law is likely to be challenging as the government has to make regulations prescribing a host of issues such as the minimum value of assets to be listed and how their existence shall be ascertained.

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Borrowers who currently use motor vehicles as security, for instance, have to transfer ownership to the bank and deposit the logbook with the lender.

Cars are the most common asset used to secure short-term loans in Kenya. Banks take full value of brand new cars as security and up to 80 per cent for used cars.

Previously, the use of assets as collateral was pegged on different laws such as The Chattels Act and The Hire Purchase Act which was faulted as being manual and lacked sharing of information which prolonged the collateral process and increased the borrowing costs.