The Movable Property Security Rights Act, (“MPSRA”) was enacted
in 2017 to provide the legal framework for using movable property such
as intellectual property rights as collateral for credit.
By JOHN NDIRANGU
This was the
first time in Kenya’s legal history for intangible assets to be
recognised as valid collateral for accessing credit from financial
institutions.
Summary
- Intellectual property rights protect the creations of the mind.
- The most common forms are trade marks, patents, copyright and industrial designs and are protected under various statutes.
- The Constitution of Kenya, 2010 requires the Government to promote and protect the intellectual property rights of the people of Kenya.
Unfortunately, however, three years down
the line, the possibility of accessing credit on the security of
intellectual property rights remains a mirage.
Intellectual
property rights protect the creations of the mind. The most common
forms are trade marks, patents, copyright and industrial designs and are
protected under various statutes. The Constitution of Kenya, 2010
requires the Government to promote and protect the intellectual property
rights of the people of Kenya.
The challenge of
popularising intellectual property rights as collateral for credit is
not unique to Kenya. There are inherent concerns associated with the
actualisation of the concept. This includes valuation of the
intellectual property rights.
Due to their intangible
nature, it is not easy to ascertain the correct value of these rights
compared to physical assets such as land or motor vehicles. IP valuation
requires the use of highly skilled and specialised professionals, who
are few in Kenya. Accurate valuation enables a lender to ascertain if a
transaction is commercially viable. The ability of lenders to find a
ready market to sell the intellectual property rights in the event of
default by a borrower and in the most efficient and cost-effective way
is another challenge which most lenders are unwilling to deal with.
The economic value of integrating intellectual property rights
within the financial system cannot be over-emphasised in a country where
most businesses do not have tangible assets such as land which are
traditionally preferred as collateral by financial institutions. A
start-up technology company would receive a big boost if it were able to
obtain credit on the security of the intellectual property comprised in
its applications. Such a business would then use the resources to grow
its business to an international level technology company and
significantly contribute to the economy through employment creation,
payment of taxes, among others. Research-based companies would greatly
benefit from the use of their patents to secure credit. With rising
innovation and technological developments in Kenya, investment in such
companies is a pressing economic need.
It may, however,
take time before Kenyan banks start appreciating the strength of
collateral based on an intangible asset which is generally considered
high-risk in the event of default.
At the international
level, various countries have implemented innovative measures to
promote the use of intellectual property backed financing, especially by
Small and Medium Enterprises (SMEs), in recognition of the vital role
that the intellectual property financing plays within the economic
systems. For instance, in 2014, the Intellectual Property Office of
Singapore introduced a reported $100 million IP Financing Scheme in
collaboration with participating lenders to help businesses use their
intellectual property to secure lending. Guided by the 10-year IP Hub
Masterplan introduced in 2013, Singapore set up the Centre of Excellence
for IP Valuation to help in accreditation and capacity building of
specialised intellectual property valuers and standardise the valuation
process. The Malaysian Roadmap for Intellectual Property Monetization
2015-2020 supports the use of intellectual property to boost economic
growth alongside other initiatives such as creation of IP Valuation
Training Module and IP Valuation Model. Malaysia is, however, still
facing a challenge of reduced public awareness of the economic value of
intellectual property hence these measures have not benefited its
citizens to full capacity as intended.
United States,
Japan and China have also developed almost similar measures. Lessons
learnt by these and other countries are important to Kenya as we shape
our own intellectual property backed finance system.
Greater
sensitisation of lenders on the value of intellectual property as valid
collateral is required. Owners of such rights, for their part, should
invest in the valuation of their intellectual property rights to
convince the lenders that intangible assets are as valuable as physical
property. Owners of intellectual property rights who have not taken
measures to have them legally protected are encouraged to do so as it
then becomes easier to successfully negotiate financing deals with
lenders. All stakeholders have a duty to contribute to the creation of
an economically powerful and efficient intellectual property backed
finance system in Kenya.
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