Moveable assets as collateral for loans: Electronic registry set to benefit micro, small & medium enterprises

Pakistan's micro, small and medium sized enterprises and individual consumers are set to benefit from the creation of an electronic registry that allows for the country's financial institutions to use moveable assets such as agricultural produce as collateral for loans.

The move follows the launch of the collateral registry by the Securities and Exchange Commission of Pakistan (SECP), supported by IFC, a member of the World Bank Group. It's part of work undertaken by the Bank Group since 2015 to boost access to finance in Pakistan, which includes changes to improve the country's legal and regulatory framework for secured transactions, as part of Pakistan's Doing Business reform initiative.

The establishment of the collateral registry will help financial service providers such as banks, microfinance institutions and leasing companies to register rights in moveable assets in offering credit to people, as well as micro, small and medium sized enterprises.

"While the Secured Transaction Registry will improve access to finance for micro, small and medium businesses, this initiative will also help in meeting the getting credit" indicator of World Bank Group's Doing Business report," said Aamir Khan, Chairman SECP. SECP has already started work for the next year to strive for 100% coverage of this indicator, which would see, Pakistan at the forefront of "getting credit" reforms in South Asia. This improvement, coupled with other changes SECP has been able to drive during the current year, in 'starting a business', 'protection of minority interests' and 'resolving insolvency' indicators shall lift Pakistan's overall ranking."

"This represents a significant milestone for Pakistan and comes at a time when the country's micro, small and medium sized enterprises (MSMEs) are adversely impacted by Covid-19," said IFC's Country Manager for Pakistan, Nadeem Siddiqui. "This global crisis clearly shows the importance of boosting financing to MSMEs, especially as lending to these only stood at 8 percent of banks financing last year, which is far less than in other countries of the region. Hence, more needs to be done to improve the credit infrastructure and to de-risk the MSME sector."

The amendments to Pakistan's secured transactions law, which was promulgated on April 30, 2020, follows collaboration between the Securities and Exchange Commission, the State Bank of Pakistan and the Board of Investment, with support from the World Bank Group, the United Kingdom's Department for International Development (DFID) and Karandaaz. Without the on-line collateral registry, the secured transactions regime was incomplete.

IFC's work will now focus on assisting the Government of Pakistan mainstream the reform to all its beneficiaries and help develop the market for movable asset-based lending. IFC, in collaboration with SBP and SECP, has already trained more than 100 representatives from financial institutions through online sessions on the secured transaction regime and the online collateral registry. IFC hopes to continue training online, amid the pandemic.