05th April 2011, www.dailynews.lk, By Charumini De Silva
The Credit Information Bureau of Sri Lanka (CRIB) has embarked on a challenging task to implement an industry accepted state-of-the-art Secured Transaction Registry (STR).The STR is also called the movable assets registry for the benefit of SMEs in particular and the country and economy, Credit Information Bureau of Sri Lanka (CRIB) General Manager, Gamini Karunaratne told Daily News Business.
He said the key is to facilitate rapid repossession and recovery by the creditor while offering necessary protection to the debtor.
The creation of a true and comprehensive notice system for security interest in movable property will provide a great service to creditors and remove unnecessary obstacles to the transfer of property rights.
The STR online registry system will commence operations by June 1.
Karunaratne said since the software was brought together in-house, the CRIB managed to save around US$ 300,000. The total cost of the STR was around Rs 50 million.
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.
"There are proven case studies where many countries have shown a significant expansion in the economy and also a growth in their credit," he said.
The Secured Transaction Act No.49 of 2009, CRIB is designated as the implementing agency for establishing an on-line registry for movable assets as collaterals when granting credit.
The Act now remains to be Gazetted by the Finance Ministry to become operative.
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," Karunaratne said.
"One of the most important sources of credit for SMEs is secured finance. That is credit extended on the basis of collateral. The ability to obtain credit by means of secured transactions has special importance for SMEs because they often do not own land and buildings, nor do they have the credit rating or relationship, which enable them to access unsecured loans.
Therefore, credit secured on movable assets is severely underutilized, mainly due to its high risks and transaction costs," Karunaratne said.
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Sri Lanka Credit Counselling Centre Sees Lower Loan Defaults with Reduction in Interest Rates
The CRIB plans to set up a 'secured transaction registry' from June 01, 2011 that will enable registration of moveable assets against which banks can give loans, its chairman Gamini Karunaratne said.
Sri Lankan banks usually lend only against collateral like fixed assets like land and buildings as they can be traced through land registries.