Soon You Will Use Your Cow to Secure a Loan from a Commercial Bank

The World Bank announced funding for the creation of an electronic registry that will allow the use of household goods, live animals and office equipment as collateral for commercial loans in a move aimed at boosting access to credit by personal and household credit consumers.

The World Bank, through its private investment arm, International Finance Corporation (IFC), has disclosed its efforts with the government and bankers on the development of a collateral registry, which is expected be deployed by June 2020.

Kenya passed the Movable Property Security Rights Act in 2017 to help bank customers without common and costly forms of collateral to access credit.

The objective of the project is to increase the reach of credit to individual consumers as well as Micro, Small and Medium Enterprises (MSMEs), and the IFC intends to use 24.6 million shillings to raise awareness among customers, banks and other stakeholders for early adoption of the electronic registry.

In the past, movable assets such as household goods and office equipment have been ignored by lenders as loan collaterals owing to lack of a central registry where they could log in their claim on the asset.

This meant that ownership of a collateral could easily be transferred without the bank’s knowledge, leaving it exposed in case of a default. Goods listed in the electronic registry, however, will have a unique identification number that will allow tracking of those that have been used to secure bank loans or collateral.

With the implementation of a central registry, MSME’s that have become increasingly deprived of credit owing to lack of assets categorized as collateral, will likely be able gain access, as banks will be better placed to track the asset ownership, thereby aiding in credit risk management, consequently lessening the stringent lending policies adopted by banks towards the secured lending segment with these assets listed in the registry and qualifying as collateral.

“In our view, however, we remain conservative on the short-term effect this will have on loan growth to the private sector,” said analysts from Cytonn Investments.

Public education will be necessary in order for key players (individual consumers, Micro, Small and Medium Enterprises) to fully understand the service.