By Uditha Jayasinghe
In an effort to increase credit to Small and Medium Enterprises (SMEs), the Credit Information Bureau (CRIB) on Tuesday launched the Secured Transaction Registry (STR) to record moveable assets so that financial organisations would face smaller risks in giving loans.
Currently most financial organisations prefer fixed assets such as land. However, few small entrepreneurs can afford fixed assets but have more access to movable assets such as machinery. Under this scheme all finance and leasing companies as well as banks can update the database with the details of moving collateral provided for loans creating a strong framework to reduce risks.
“At the moment banks and finance companies are reluctant to give loans for movable assets because the risk is higher. Under this scheme the finance and leasing companies as well as the banks can check on the credit worthiness of a client before giving out the loan. They can see if the same collateral has been given to other loans to reduce fraud,” said CRIB Chairman and Central Bank Deputy Governor P. Fernando.
The Secure Transaction Registry Act will be gazetted within the next few days in concurrence with the STR.
The borrower also has the advantage of using the STR to increase his creditworthiness by using it as a referral to encourage several institutions to extend credit. So far in Sri Lanka there has been no data base to record moveable assets. Under this system all movable assets other than vehicles will be resisted. The reason that vehicles have been exempted is that a system already exists under the Registrar for Motor Vehicles (RMV).
Even though the data base is not currently available to the public the CRIB hopes to extend its availability within the next few years.
“STR also assists the public to ascertain if any moveable assets they are buying have already been used as collateral. Even though individuals have no access to the database, they can ask the relevant bank to check for them and this will reduce instances of fraud,” explained Fernando. This means that there is reduced opportunity for people to sell machinery and other equipment that has already been used as collateral.
The CRIB hopes that this measure will increase credit access to small and medium enterprises, thereby encouraging entrepreneurship and economic growth in the country.