Consumer Protection
In order to protect the borrower from inaccurate information being registered in the Collateral Registry, the Bill will ensure that any information that is registered would be confirmed and authorised by the borrower.
Access of Information to the Public
Madam President, currently lenders have limited information regarding the borrowers. For example, if a lender is considering a loan to a small or medium-size enterprise, one of the biggest deterrents is the possibility that the borrower has already given its assets as collateral to another lender which evolves into a dispute involving lenders concerning whose debt is superior to the other.
The Bill will therefore create a reliable and affordable public registration system to allow lenders and the public to see which assets have been pledged as collateral by the borrower which will assist the lenders in making a more informed business decision when advancing a loan.
Benefits of a Collateral Registry
The expected benefits of a Collateral Registry are as follows:
1. Promoting financial inclusion since most economic agents including SMEs, women, youths and other under-banked groups currently experience challenges in accessing financial services due to lack of immovable property often required for collateral purposes;
2. Increased access to credit through reducing the risk of credit;
3. Improving competition in the financial sector by enabling both banks and non-bank financial institutions to offer secured loans; and
4. Reducing cost of credit through reduced interest rates as economic units move from informal to formal financing.
Experiences in Other Countries
Madam President, many countries regionally and internationally have established collateral registries over the last few decades. These include Liberia, Ghana, Malawi, Kenya, Lesotho, Rwanda, China, Peru, Mexico and Ukraine, among many others.
Studies show that collateral registries have substantial economic impact. A study conducted in 2013 found that in countries that have introduced collateral registries, access to bank finance increased by 8% and the terms increased by six months whilst interest rates declined by 3% per annum on average.
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