The new law comes at the time of increased lending from microfinance institutions which have been accepting alternative forms of collateral from those that had been excluded from the main banking sector.The law lays the legal groundwork for banks to lend against movable assets, including crops, livestock and vehicles.
Parliament passed the Security Interest in Movable Property Bill, 2019. The Bill will facilitate credit for small borrowers and manage the risk of borrowing by the financial sector.
The passing of the Bill comes after the adoption of a report by the Legal and Parliamentary Affairs Committee in which during the debate, MPs across the political divide showed support for the Bill which they said will go a long way in increasing access to financial services and inclusion.
The Bill which is envisaged to make credit affordable for Ugandans was tabled by Justice and Constitutional Affairs Minister Gen Kahinda Otafiire and passed on Thursday during the plenary session chaired by Speaker of Parliament Rebecca Kadaga.
According to different reports, only 20 percent of Ugandans own land titles, the main collateral required by financial institutions from loan applicants. More than 80 percent of the population is involved in small businesses with movable assets but is excluded from accessing credit due to lack of collateral.
The Bill once assented to by President Museveni will free up the locked up capital in form of movable assets to be used as security. Some of the movable assets include Television sets, Fridges among others.
It will also provide for the creation and perfection of security interest, rules for determining priority of claims among competing claimants and registration of security interest in movable property by notices and others.
It also provides for a register of interests in movable property, enforcement of security interests, search of the register and related matters.
The Bill allows Uganda Registration Services Bureau (URSB) to work with Financial Sector Deepening Uganda (FSD Uganda), Bank of Uganda and local banks to set up a formal movable collateral securities registry.
Commercial banks in the country currently rely solely on land titles for use as collateral. That has meant that close to 80% of the population has been denied access to bank credit because they don't possess land titles.
Small and medium sized business owners can now also qualify for bank credit once the law is implemented.
Players in the financial sector have for long been pushing for this law saying it may play a key role in increasing financial inclusion as well as expanding access to formal bank credit. Lenders are likely to benefit from this law because it will broaden their client base.