New Law: Securing Sacco Loans Using Household Items

By Our Correspondent.

Members of Savings and Credit Co-operatives (Saccos) will soon qualify for loans using movable items such as household goods, livestock, office equipment, electronics and motor vehicles to serve as additional security for the uptake of loans.

Talks are ongoing between the Business Registration Service (BRS) who are deemed as the custodians of movable security items and Saccos, to expand and include movable items in their loans securities, like banks.

Data from Central Bank of Kenya (CBK) indicated that in the 12 months leading to August 2019, Kenyans borrowed Kshs 43.56 billion from banks using household items, office equipment and livestock making for a third of the total loans issued by banks in the period.

The Movable Property Security Rights Act 2017, permits the use of movable items as collateral, as well as immovable assets which are primarily buildings and land; a key diversification to accommodate more Kenyans to take up loans.

At present, the Sacco lending model requires guarantors for the issuance of credit, hence in case a borrower defaults, part of the loan is covered by the amount guaranteed by the guarantor.

“We have an engagement to sensitize and give Saccos awareness on what needs to be

Mr. Kenneth Gathuma,CEO & Director General BRS.

SASRA CEO John Mwaka

done to come into this lending ecosystem,” noted the BRS director general Kenneth Gathuma.

The Sacco Societies Regulatory Authority (SASRA) CEO, Mr John Mwaka, stated the move is dependent on Saccos, who would have to amend their respective by-laws for operationalization as opposed to the industry’s regulations.

“During the annual general meetings, members will decide whether to ratify their own regulations, to accommodate the changes in their business procedures,” Mr Mwaka noted.

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.

Borrowers will be required to register the assets as collaterals at the government online platform; eCitizen under the business registration service.

According to the regulations, a borrower can access credit from multiple lenders with the same asset, but the first lender who registered the security right will have priority in the event of default.

“The issue of Movable Properties Security Regulations is about priority rights. If Saccos register interest in movable asset registry, it will give them priority among other lending institutional peers, when they want to reclaim that particular interest,” he added.

According to Mr Gathuma, Saccos will act as creditors in order to register security rights of the assets issued by their members or guarantors. Consequently, in case of default in the repayment of loans, there would be rise in interests in competing claims to the assets’ rights.