In a move aimed at boosting access to credit, the World Bank said it will fund the creation of an electronic registry that will allow use of household goods, live animals and office equipment as collateral for commercial loans.
The World Bank, through its investment arm, International Finance Corporation, revealed that it is working with the Kenyan government and bankers to develop the collateral registry, which is expected be ready by June 2020.
In 2017, Kenya passed the Movable Property Security Rights to help bank customers without common and costly forms of collateral such as motor vehicles (logbook) or land (title deed) to access credit. However, the late formation of a centralised electronic registry for mobile assets that financial institutions can use to verify the security offered has delayed application of the law.
The international Finance Corporation said “the objective of the project is to increase the reach of credit to individual consumers as well as micro, small and medium enterprises, especially women entrepreneurs who are adversely affected by the traditional lending practice that favours physical assets over movable assets as collateral for loans”.
The global lender will use $240,000 (Sh24.57 million) to raise awareness among customers, banks and other stakeholders for early adoption of the electronic registry.
Goods listed in the electronic registry will have a unique identification number that will allow tracking of those that have been used to secure bank loans or collateral.
As a result of the lack of a central registry where claims can be logged, movable assets such as household goods and office equipment have been ignored by lenders as loan collaterals. Lack of a central registry meant ownership of a collateral could easily be transferred without the bank’s knowledge, leaving it exposed in case of a default.
The registry is the answer to the difficulties facing potential borrowers who do not have land to back up their credit applications.