Flexible credit terms to boost SMEs
The newly-enacted Personal Property Security law will enhance the rights and obligations of both lending institutions and borrowers, the Bankers Association of Malawi (BAM), a grouping of 12 local commercial banks, has said. Parliament last week enacted the Personal Property Security Bill (PPSB) into law which Minister of Industry and Trade Sosten Gwengwe believes will address the challenges Small and Medium Enterprises (SMEs) face in accessing credit for their business expansion.
The new law will make it possible for businesses to use movable assets such as vehicles, bicycles and fridges as collateral to access loans from lending institutions.
BAM executive director Lyness Nkungula told Business News yesterday that the new law will enforce security interest in personal property as well as perfection of security interest by registration, possession or control.
“Issues of priority between security and other interests in the same personal property have also been clarified in the Act and how a lending institution can enforce security interest,” she said.
The Act has resulted in the repeal of some old laws such as Bills of Sale Act, Farmers Stop- Order Act, Commercial Credits Act and the Hire Purchase Act, which means that the laws touching on such areas have been consolidated into the new law.
But Nkungula said businesses will have to wait for the law to be gazetted and that each lending institution may have to come up with a policy or framework within which to lend using the new law.
“This is important for lending institutions to make sure that they also comply with other laws and directives from the Reserve Bank of Malawi in the process offering loans under this new legislation. There is also a requirement for the minister [of trade] to come up with regulations
to supplement the Act,” she said.
According to BAM, even before the passing of PPSB into law, lending institutions were and still continue to take collateral in the form of personal chattels, but the new law has just extended the rights and obligations of parties to widen the type of property that can be used as personal security, including intellectual property.
The new law is aimed at reforming the law relating requiring land, buildings or other immovable assets; hence, proving difficult for SMEs and individuals to access loans.
He said the law will ensure the introduction of electronic registry for movable assets to reduce lending risks.
“Lending institutions will be able to search the movable items that have already been used as collateral to a loan somewhere else. This piece of legislation will enable SMEs to access credit more than before,” said Gwengwe.
requiring land, buildings or other immovable assets; hence, proving difficult for SMEs and individuals to access loans.
He said the law will ensure the introduction of electronic registry for movable assets to reduce lending risks.
“Lending institutions will be able to search the movable items that have already been used as collateral to a loan somewhere else. This piece of legislation will enable SMEs to access credit more than before,” said Gwengwe.
