LAW: Sacco members will soon use household goods as security for loans
Sacco members will soon use household goods, livestock and office equipment as additional security for loans a new law is adopted, Business Daily reports.
Business Registration Service (BRS) is in talks with the Saccos to join banks and expand their loans securities to include movable items.
This is thanks to the Movable Property Security Rights Act 2017 that has enabled banks to diversify collateral from the tradition of using immovable assets — primarily land and buildings — which are beyond the reach of most Kenyans.
“We have an engagement to sensitise and give them awareness on what needs to be done to come into this lending ecosystem,” BRS director general Kenneth Gathuma said.
The law and regulations created a single electronic registry for movable assets used as security for bank loans, which makes it easier for borrowers who do not own land or buildings to also access loans on strength of the movable properties.
Initially, ownership of collateral in the form of movable assets could easily be transferred without a bank’s knowledge, leaving it exposed in case of a default.
Banks have traditionally not accepted movable assets as collateral for loans because of lack of a central database they could log into and make a claim on an asset attached to a loan.
The BRS is the custodian of the movable security items.
Currently, saccos lending model use guarantors for issuance of credit. In case of default by the borrower, the amount guaranteed by the guarantor is used to cover part of the loan.
Tier 1 Saccos, with large assets such as Unaitas and Stima Sacco also accept the movable assets such as motor vehicles and title deeds and shares to give credit.
Sasra chief executive John Mwaka has said the move will have the societies amend their own Sacco by-laws for operationalisation, rather than the industry’s regulations.
“The decision will be on members to ratify their own regulations during annual general meetings and accommodate the changes in their business procedures,” Mr Mwaka said.