Bianca Mlilo, Business Reporter
The Government has gazetted the Movable Property Security Interests Act, which will see individuals use their movable properties as collateral in accessing loans.
The Act was gazetted on November 28 and will become operational on a date to be set by President Robert Mugabe via a statutory instrument.
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 particular collateral.
“There is hereby established a department of the Reserve Bank to be known as the Collateral Registry. There shall be a Registrar of the Collateral Registry who shall be appointed by the Governor of the Reserve Bank,” reads part of the Act.
“The purpose of the registry is to facilitate commerce, industry and other socio-economic activities by enabling individuals and businesses to utilise their movable property as collateral for credit.”
The registry is a welcome development for micro, small to medium enterprises (MSMEs) who have for long lamented their failure to access funding due to financiers’ demands for immovable collateral like houses.
This is despite the recognition that MSMEs contribute significantly to the country’s economy, with more than 60 percent of the country’s population earning their living in the MSMEs sector.
A concept paper by the Ministry of Finance and Economic Development and the Ministry of Small to Medium Enterprises and Cooperative Development released in May this year stated that financial institutions pointed out a need for an adequate legal and regulatory environment, which promotes the use of movable assets as collateral.
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 will provide 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.
The 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.