The Securities and Exchange Commission of Pakistan (SECP) is all set to launch Secured Transaction Registry (STR) on a national level which will enable Small and Medium Enterprises (SMEs) to secure credit from financial institutions, according to a report by a local news site.
The report quoted a source saying that the STR project will 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
- Motor vehicles etc
The collateral registries are publicly available databases of interests in or ownership of assets, said the report.
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.
Most of the SMEs do not own real estate and in developing countries, movable property is not accepted as collateral due to a lack of legal framework. This makes it difficult for SMEs to get affordable credit on one hand and also restricts lending opportunities for financial institutions.
Therefore, enabling the 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.
This regime introduces a system to provide rapid enforcement of security rights in the event of default largely through a private sale.
Financing for banks and SMEs alike will become easier, less risky and less costly, thereby helping boost the country’s business and investment environment. Secured transactions framework in Pakistan will become effective once the secured transactions registry for unincorporated entities is operationalized by the SECP.
This will be a game-changer for the economy through promotion of easy and affordable credit for the SMEs.
