To enable Small and Medium Enterprises (SMEs) to secure credit from financial institutions, the Securities and Exchange Commission of Pakistan (SECP) is all set to launch Secured Transaction Registry (STR) on national level.
Sources told Business Recorder Monday that the STR project would facilitate small borrowers specifically from SMEs and agriculture sector to secure credit from financial institutions against their movable assets such as receivables, intellectual property, inventory, agricultural produce, petroleum or minerals, and motor vehicles, etc.
According to details, the collateral registries are publicly available databases of interests in or ownership of assets.
A collateral registry, which records the potential existence of security interest in movable assets, can protect the rights of creditors in secured lending.
This institutional and infrastructural mechanism supports the legal framework of security rights in movable assets by facilitating awareness of both their existence and establishing priority based on the time of registration.
It is a common reality that most SMEs do not own real estate.
In developing countries, movable property is not accepted as collateral due to a lack of legal framework.
This hinders SMEs' access to affordable credit on one hand and also restricts lending opportunities for financial institutions.
Therefore, enabling use of movables as collateral is a prerequisite to promote easy access to credit particularly for small businesses.
Without a modern secured transactions regime, moveables are deemed as dead capital because banks are reluctant to lend against such collateral.
In this context, one of the key goals of any government is to increase access to credit through the secured transaction law for movables.
Internationally, the key feature of the secured transaction regime is to permit a security right in any movable property, goods, and intellectual property.
The regime introduces a system to provide a rapid enforcement of security rights in the event of default largely through private sale.
A security interest created under the secured transaction laws is always treated as supreme because secured creditors will be able to collect their debts before other creditors without a security thereof.
Effective collateral registries can reduce the costs of credit monitoring by notifying parties about the existence of a security interest and establishing priority of creditors against third parties.
Financing for banks and SMEs alike will become easier, less risky and less costly, thereby helping boost the country's business and investment environment.
Modern secured transactions laws and collateral registries have a tangible impact an economy's growth and development potential.
Secured transactions framework in Pakistan will become effective once the secured transactions registry for unincorporated entities is operationalised by the SECP.
It will be a game changer for the economy through promotion of easy and affordable credit for the SMEs.
Establishment of secured transactions registry is a key component of the SECP's recent initiative for end-to-end process automation and digital transformation, ie, "LEAP" (Leading Efficiency through Automated Prowess).
The primary focus of this initiative is to facilitate ease of doing business, to enable meeting compliance requirements through lowering cost, and to bring efficiencies in turnaround times (TATs), while accomplishing transparency and internal accountability.
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