February 6, 2020: The Federal Government has notified the Financial Institutions (Secured Transactions Registry – STR) Rules, 2019, enabling the establishment of a secured transactions registry for entities other than companies. The STR will facilitate small-scale borrowers in obtaining secured credit by pledging their movable assets.
The rules issued under section 70 of the Financial Institutions (Secured Transactions) Act, 2016 primarily cover functions and powers of the registry, administrative role of the registrar, registration and search of security interests and modes for enforcement of security interests.
In line with global best practices, the act was enacted for providing a comprehensive legal framework for creation and enforcement of security interest on movable assets e.g. receivables, intellectual property, inventory, agricultural produce, petroleum or minerals, motor vehicles etc.
Small companies often do not have immovable assets like real estate but own movable assets which may be used to provide guarantee against their loans. However, without a modern secured transactions regime, banks are reluctant to lend against movables. In order to address this issue secured transaction laws, enabling use of movables as collateral, are being introduced worldwide. Over the past decade, more than 80 economies have reformed their legislation governing secured transactions.
In March 2019, the federal government extended the responsibility of operating Secured Transactions Registry to SECP. Consequently, to the notification of STR rules, SECP is expected to launch the Registry before the close of current financial year. Establishment of STR, besides facilitating affordable credit for businesses particularly SMEs, will also improve country’s ranking on Doing Business Index.