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Oliver Kazunga Senior Business Reporter
ZIMBABWE will soon operationalise a Collateral Registry to allow borrowers with movable property to prove their credit worthiness to potential lenders. This is in line with international practices. A collateral registry is a publicly available database of interests in or ownership of movable assets allowing borrowers to prove their credit worthiness and potential lenders to assess their ranking priority in potential claims against a particular collateral.
According to a concept paper on the credit registry by the Reserve Bank of Zimbabwe (RBZ) and the Ministry of Finance and Economic Development, Micro, Small and Medium Enterprises (MSMEs) and individuals are failing to access the credit market due to lack of collateral that mainstream lenders (financial institutions) require as security for lending.
This is despite the recognition that MSMEs contribute significantly to the country’s economy. “Notwithstanding these realities, the major economic agents (SMEs and individuals) are failing to access the credit market due to their lack of collateral.
“SMEs, women entrepreneurs and youth in business have security in the form of movable assets, which are not readily accepted by the traditional credit providers such as banks,” reads part of the concept paper from RBZ.
The document further states that financial institutions have pointed out a need for an adequate legal and regulatory environment, which promotes the use of movable assets as collateral.
“Against this background, the RBZ and the government have initiated measures to operationalise a collateral registry in line with international best practices. The Reserve Bank and the Ministry of Finance and Economic Development are already working on the legislation to support the establishment of a collateral registry,” it said.
The collateral registry shall file notices of security interests in movable properties and determine priority in a borrower’s collateral. It is believed that a reliable collateral registry or pledge system that allows the use of movable assets as collateral can significantly improve small entrepreneurs’ access to loans.
The collateral registry system is aimed at providing a mechanism for efficient registration of security interests in movable property and realisation of such interests in the event of a default.
Among others, it also seeks the creation and perfection of movable security interests as well as providing a platform to notify parties about the existence of a security interest in movable property.
“The establishment of the collateral registry is expected to result in the following benefits among others; improve access to finance for SMEs and individuals accessing credit secured with movable property; increase market competition through development of other financial classes success as factoring and leasing, provide a more efficient risk management as it leads to a better diversification of assets held by financial institutions (portfolio and credit risk diversification) as well as creating more space for the securitisation of loan portfolios in the secondary markets, through use of movable assets collateral,” reads the paper.
Key features of the envisaged collateral registry would include web-based system, registration by creditors, notice based registry and low registration fees.
The establishment of the envisaged credit registry will not be peculiar to Zimbabwe as more than 10 countries across the world have over the last decade established such registries. Countries with the credit registry system include Ghana, Rwanda, China, Croatia, Guatemala, Peru, Serbia, and Ukraine.
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