Sri Lankan Banks to Accept Movable Property as Collateral against Loans from June 1st. CRIB to Maintain the Registry

22nd May 2010, www.sundaytimes.lk, By Bandula Sirimanna

Machinery, furniture, vehicles, electrical or electronic appliances regarded as movables in banking parlance and which were not accepted as security for loans, could now be furnished as collateral from June 1, according to a ruling by the Ministry of Finance.

A gazette notification is being prepared for this purpose compelling banks to accept movable property and an announcement to this effect will be made on Wednesday May 25. Currently only immovables like house and property are accepted as collateral while jewellery was the only exception as movable property.

A senior official of the Finance Ministry said this is intended to help the poor, small and medium entrepreneurs and those engaged in self employment who are unable to furnish immovable property as a security against credit facilities.

Though there are no regulations against presenting movable property as security against loans, banks and other financial institutions were reluctant to accept these and preferred land and real estate as collateral.

The official said that this is because Sri Lanka does not currently have a mechanism for the registration of security interests in movable assets and determining priority in a security giver’s collateral. In the absence of such mechanism, lenders find it risky to accept movable property as collateral for advances, he said.

When contacted to obtain more information on this initiative, Credit Information Bureau of Sri Lanka (CRIB) General Manager, Gamini Karunaratne told the Business Times, that under the Secured Transaction Act No.49 of 2009, CRIB is assigned as the implementing agency for establishing an on-line registry for movable assets as collaterals when granting credit. The CRIB, will introduce a state-of-the-art ‘Secured Transaction Registry' (STR) from June 1, paving the way for people to borrow using moveable property as security. Under this initiative, small and medium entrepreneurs and the poor are the main beneficiaries. CRIB has introduced special software for the new secured transaction registry.

The STR will promote economic activities in the country, especially in equipment, receivables, agricultural consumer financing and reduce the dependency of lending institutions on immovables as security for credit facilities, he added.

Details maintained in the registry are public information and accessible to the public. Registration of notices and other tasks can also be performed online by users who have been registered with the Bureau. The registry is concerned exclusively with providing notice of the existence of a relationship between a secured party (financer) and a debtor, as it relates to particular movable collateral. The registry will give secured parties confidence in the system, and will result in increased business activity and vast improvement in the economic condition of the country as a whole, Mr Karunaratne said.

There are two main purposes to be served by this STR registry. It must provide notice to prospective creditors of the possible existence of a security interest in the collateral of a debtor. Discovery of a notice by a prospective creditor merely warns the prospective creditor to inquire further before making commitments to the debtor. Secondly, the date of registration may serve as a date by which priority is measured, in the event of competing claims to the same collateral. "Prospective creditors who are offered equipment, inventory, accounts and documents of title as collateral must search registries to ascertain the existence of claims to the collateral," Mr. Karunaratne said.

The establishment of a Secured Transaction Registry (STR) in Sri Lanka was initiated by the Asian Development Bank in March 2003. The Credit Information Bureau (CRIB) was earmarked in 2004 to house the prospective Registry. In September 2009, the Secured Transaction Bill was presented in Parliament and certified as the Secured Transaction Act No. 49 of 2009. The Act now remains to be gazetted by the Ministry of Finance to become operative.

Related Info :

• Sri Lanka Banks to Lend against Moveable Property from June as CRIB Sets up Secured Transaction Registry

• CRIB Develops Secured Transaction Registry on Movable Assets by Deploying Locally Developed Software

• Sri Lanka Credit Counselling Centre Sees Lower Loan Defaults with Reduction in Interest Rates