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

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

16th May 2011, www.lankabusinessonline.com

Sri Lankan banks will soon be able to lend against moveable property with a new initiative by the Credit Information Bureau (CRIB), an official said.

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.

"We aim to enable small and medium entrepreneurs and poor people to borrow," he told Vimasuma.com, our sister news website.

"By allowing people to borrow using moveable property like furniture and vehicles for the first time we can bring SMEs and the poor into the formal banking economy from the informal sector," Karunaratne said.

"It is a revolutionary change in our lending environment."

Sri Lankan banks usually lend only against collateral like fixed assets like land and buildings as they can be traced through land registries.

"In developed countries banks can lend against moveable assets if they are registered," Karunaratne said.

He said the software for the registry was made in Sri Lanka by CRIB software developers instead of being imported enabling considerable saving of foreign exchange.

Related Info :

• 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

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

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.

Related Info :

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

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

21st March 2011, www.dailynews.lk, By Charumini de Silva

Sri Lanka’s Credit Counselling Centre said that the amount of default loans have come down with the reduction of interest rates in the country.

With the reduction of interest rates, financial discipline and credit facilities becoming more affordable to the public the non-performing loans (NPL) have come down.

As a result, the businesses and the circulation of money in the country have increased commendably, Credit Counselling Centre Head Siromi Wickramasinghe told Daily News Business.

Having seen the financial reports of the corporate sector, the businesses have gained impressive improvements in their profitability and turnovers thus enhancing the repayment of loans they have taken from banks, Wickramasinghe said.

She said majority of the default customers are credit cardholders and the common reason for their default is that they do not fully understand the concept of the credit card. The financial knowledge is a key component of an economy. Due to the lack of financial education the public get into trouble and it could lead the entire financial system down a negative path.

Many borrowers default payments because they do not realize the financial concept of the products, she said.

The other reasons for defaults are due to loss of employment, bankruptcy and low income levels of the businesses. However, most of these types of defaults are temporary and are restored after the difficult period is over.

“At the Credit Counselling Centre we educate the customers and help them come back into the proper financial system. We discuss the difficulty of the default customer and thereafter the financial institutions take over the matter.

The Credit Counselling Centre also provides information to the financial institutions to look at the customer and the situation in a fresh manner.

There is always a chance for the facility to be rescheduled and restructured in order to get the consumers back into the financial mainstream,” Wickramasinghe said.

She said since the establishment of the Credit counselling Centre in 2009, the centre has spoken to over 4,000 individuals up to now.

The Credit Information Bureau’s (CRIB) performance in reporting both good and bad of the individuals is noteworthy. The entire banking system is encouraging the default customers to get back into the financial system. The banks are interested in money and not the property of individuals.