How small businesses can use movable property to access credit

Efforts geared towards increasing access to affordable credit have been undertaken by Uganda Registration Services Bureau (URSB) through encouraging the population to formalise their businesses. This is coupled with putting in place measures that will reduce interest rates required to access credit by establishing a registry that will centralise information relating to security interests in movable property.

According to a World Bank report of 2014, there was a significant improvement in access to financial services by the Ugandan population. More than 85 per cent of the population, was recorded as being financially included which was attributed to the widespread activations of mobile money financial services. And 35 per cent of the population in the same report had access to credit from financial institutions.

In Uganda, access to credit has always been provided majorly by commercial banks and micro deposit taking institutions (MDIs). This sector has been enhanced by Savings and Credit Cooperative Organisations (Saccos), Money Lenders and mobile money operators. With the segmented providers, access to affordable credit remains a challenge for micro, small and medium enterprises (MSMEs) that grapple with the competitive market that requires credit to further grow their entrepreneurial craft.

However, most of the credit accessed by Ugandans has been and continues to be against fixed collateral such as land and buildings, which is a hindrance to the growth of MSMEs that lack the fixed assets and thus closes out a lot of entrepreneurs from being able to access credit. MSMEs are generators of employment, especially to the youth. They also enhance the GDP of the country. Therefore, being unable to access finances impacts their growth and contribution to the economy.
URSB manages the Chattels Securities Registry, which is currently manual as part of its mandate. In 2017, URSB in its All Digital All Online strategy started the process of transforming it from a manual to a fully electronic registry, which is in line with internationally accepted best practices.

The Security Interest in Movable Property Bill No. 1 of 2018, which is currently before the Parliament of Uganda, seeks to repeal and replace the Chattels Securities Act No. 7 of 2014. The Bill will facilitate MSMEs and individual entrepreneurs to access affordable and long-term credit from a wide range of MDIs. Licensed money lenders and the banking sector using movable assets such as livestock, vehicles, machinery, jewelry, home furniture, trademarks, patents, copyright, electronics, inventory, wood and garden produce and household equipment. All Registry services will be accessed electronically by individuals, organisations, banks, microfinance institutions, Saccos, licensed money lenders and legal representatives who may act on behalf of lending institutions.

Currently, the e-solution is in its final stages of development. Before it is rolled out, the system will be tested with the users who include MDIs, money lenders and the banking sector to receive feedback and ensure the system designed is appealing and meets their client’s needs. A number of engagements were held with the credit industry’s practitioners, including financial and non-financial institutions last year.

This was meant to encourage them to expand their credit portfolio to include movable property that a vast majority of Ugandans own. The online solution will provide information on the movable collateral registered to enable borrowers’ access credit from lenders. This will provide opportunities for affordable credit to the borrowers as the risk of lending is reduced for lenders, through the transparency introduced by the online registry system.
The responsibility of operationalising the collateral registry is vested in URSB. The benefits of having an electronic registry for secured lenders and buyers previously owned goods include:

A centralised online registration system capable of facilitating real time data while security interests are made public through a public registry; the ability to track collateral that has been encumbered during a transaction through the available database.
URSB reiterates its commitment to ensuring that the electronic security interest in movable property registry is fully functional by April 1. We are certain that with this intervention, Ugandans will more readily access affordable credit and channel the finances to improve their livelihoods and create more wealth and job opportunities thus propelling prosperity for all.
Finances have for long been a hindrance to growth of MSMEs and many individual citizens. URSB hopes to support the realisation of the objectives of the National Development Plan II by establishing the movable collateral registry as one way of increasing the pool of borrowers, and reducing the default rates.

Mr Twebaze is the Registrar General of Uganda
Registration Services Bureau (URSB).
@BemanyaT