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Home items to secure sacco loans in the new law

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Home items to secure sacco loans in the new law


Kenya currency banknotes. The Saccos loan model uses guarantors for issuing credit. In the event of default by the borrower, the amount guaranteed by the guarantor is used to cover part of the loan. PHOTO FILE | NMG

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Summary

  • The Business Registration Service (BRS) is in talks with the Saccos to join the banks and extend their loan guarantees to include movable items.
  • Currently, the saccos loan model uses guarantors for the issuance of credit. In the event of default by the borrower, the amount guaranteed by the guarantor is used to cover part of the loan.
  • Borrowers will be required to register the assets as collateral on the government’s online platform at eCitizen, as part of the business registration service.

Members of cooperative savings and credit societies (Sacco) will soon use household items, livestock and office equipment as additional collateral for loans.

The Business Registration Service (BRS) is in talks with the Saccos to join the banks and extend their loan guarantees to include movable items.

This is thanks to the Movable Property Security Rights Act 2017 which allowed banks to diversify collateral from the tradition of using real estate assets – mainly land and buildings – which are beyond the reach of most Kenyans.

“We are committed to educating them and making them aware of what needs to be done to enter this lending ecosystem,” said BRS Managing Director Kenneth Gathuma.

The law and regulations have created a single electronic register for movable property used as collateral for bank loans, making it easier for borrowers who do not own land or buildings to access loans on the strength of movable property. .

Initially, the ownership of collateral in the form of movable assets could easily be transferred without a bank’s knowledge, leaving it exposed in the event of default.

Banks have traditionally not accepted movable assets as collateral for loans due to the lack of a central database to which they could connect and make a claim on an asset attached to a loan.

BRS is the securities depository.

Currently, the saccos loan model uses guarantors for issuing credit. In the event of default by the borrower, the amount guaranteed by the guarantor is used to cover part of the loan.

Tier 1 Saccos, with significant assets such as Unaitas and Stima Sacco, also accepts movable assets such as motor vehicles, title deeds and stocks to give credit.

Sasra chief executive John Mwaka said the move would force companies to change their own Sacco bylaws for operationalization, rather than industry regulations.

“The decision will be for members to ratify their own bylaws at annual general meetings and adapt to changes in their business procedures,” Mwaka said.

Borrowers will be required to register the assets as collateral on the government’s online platform at eCitizen, as part of the business registration service.

Mr. Gathuma said the companies will act as creditors to register collateral on assets issued by members or guarantors.

This would mean an increase in interest in competing claims to the rights of assets in the event of default on loans.

The regulations allow a borrower to access credit from multiple lenders with the same asset, but the first lender to register the collateral will have priority in the event of default.

“The issue of the Security of Personal Property Regulations concerns priority rights. If they (saccos) register an interest in the movable property register, this will give them priority among other peer credit institutions when they want to recover this particular interest, ”he added.

Data from the Central Bank of Kenya showed that Kenyans borrowed 43.56 billion shillings from banks using household items, livestock and office equipment in the 12 months to August 2019, a third of the total. loans issued by banks during the period.

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