The number of notifications by lenders for credit issued against movable assets such as motor vehicles, livestock, and furniture increased by 41.5 per cent in the financial year ended June to hit a record high.
Latest data from the Business Registration Service (BRS) shows Movable Property Security Rights (MPSR) initial notices increased sharply to hit a record high of 167,271 in the financial year 2022/23 up from 118,157 in 2021/22.
This marks the third year in a row that the volume of these initial notices has increased, having dropped sharply in the financial year 2019/20 due to the Covid-19 pandemic that saw banks and other financiers reduce lending.
MPSR initial searches also rose to 23,773 up from 23,154 in the previous year. This comes at a time individuals and firms are braving a high cost of living and depressed sales respectively amid a tough operating environment. To unlock liquidity, they are releasing their movable assets such as motor vehicles, crops, machinery, livestock, business inventory, electronics, and furniture to secure loans.
Kenya enacted the Movable Property Security Rights Act in 2017 which provided a legal framework that governs the use of movable property as collateral which led to the establishment of the register in May 2017 to replace the chattels registry.
This has enabled borrowers to now use such assets to secure loans, while lenders have gained more confidence to lend to such borrowers as such assets would cover their outstanding loans in case of default.
“When you make a notice, you are given the priority that in case the borrower defaults, that asset will be disposed to recover the loan,” Deputy Registrar of MPSR at the BRS Shighadi Mwakio told Nation in June.
Financiers pay Sh500 for a search request to check any encumbrances on movable property.
“We are exploring ways to make it easier for lenders to make searches to see whether a property has an encumbrance on it and to register as a secured lender. This is one way that we will contribute to growing lending to the private sector,” said Ms Mwakio.
Businesses are struggling under the weight of an increase in the cost of inputs, a weak shilling, and increased taxation which have increased the cost of doing business.
Further, high inflation, which stood at 7.3 percent last month, has reduced consumption which has depressed the earnings of businesses.
For instance, firms recorded a slump in sales for the third month in a row in July, according to Stanbic Bank Kenya’s latest Purchasing Managers’ Index (PMI).
The PMI showed businesses suffered a significant fall in demand last month as customers continued to rein in spending amid steep inflation accelerated by political protests.
Further, the cost of borrowing has risen—dealing a blow to many households and firms that relied on quick loans to service their needs.
The Central Bank of Kenya (CBK) in June raised the central bank rate (CBR) to 10.5 percent up from 9.5 percent in a bid to tame inflation. Many lenders have since gone on to increase interest rates on not only their new Kenyan shilling-denominated loans but also existing loans.
