This meant that ownership of such collateral could easily be transferred between persons without the bank’s knowledge, leaving lenders exposed in the event of default.
A 2014 report by Financial Sector Deepening (FSD) Kenya said countries such as Mexico and Ghana have reported an increase in SME lending following the setting up of similar registries.
Implementation of the law is likely to be demanding 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.
“It’s a good development for the industry. The absence of this law has meant that banks could not advance credit to people presenting mobile assets as collateral,” Habil Olaka, the Kenya Bankers Association chief executive said, adding that the setting of the legal framework paves the way for implementation.
“The regulations should clearly specify which kinds of assets, including biological assets, qualify.”
The new law also allows borrowers to use a single asset to access credit from different lenders.
Borrowers who currently use motor vehicles as security, for instance, have to transfer ownership of the car to the bank and deposit the logbook with the lender as evidence of ownership.