The National Assembly has enacted a bill amending the Financial Institutions (Secured Transactions) Act, 2020, to strengthen small and medium-sized businesses’ access to loans (SMEs).
SMEs currently have access to fewer than 10% of private-sector financing, although accounting for roughly 40% of GDP, according to central bank figures. Additionally, the modification will increase the security of financial institutions’ transactions.
The measure will modernise the legal framework governing secured transactions and bring it into compliance with worldwide best practises. Additionally, it is expected that the country’s standing on the World Bank’s Ease of Doing Business Index will increase.
The bill has now been referred to the upper chamber for final approval. It entails the establishment, perfecting, and enforcement of security interests in moveable property. This is being done to improve SMEs’ access to credit by allowing them to utilise their movable assets – receivables, intellectual property, inventory, negotiable instruments, agricultural product, petroleum or minerals, and motor vehicles – as collateral for loans.
Additionally, SMEs’ security interests will be governed on the basis of their function, not their form or traditional security interest nomenclature. Additionally, this will bring the regulatory rules into compliance with international best practises for secured transaction regulations and with World Bank criteria.
The law does not require the filing of a security agreement and allows for the prior registration of security interests depending on the entity’s authorization. The paper said that a charge/security interest may be filed for a duration of up to five years, which may be extended if necessary.
Registration of all sorts of security interests on movable property might result in the perfection of security interests. However, in certain circumstances, such as possession of physical moveable property or a claim to monies credited to a bank account, perfection may also be reached by possession or control. It stated that previously, perfection by registration was not possible for all forms of security interests.