Support Collateral Registry Regime - Frank Adu

The Chief Executive of CAL Bank, Mr Frank Adu Jnr, has called on his fellow bankers to support the collateral registry regime to ensure that it realizes its objective of channelling credit to small enterprises. Mr Adu said the system, which among other things provides for collaterals registered with a body, the Ghana Collateral Registry, would help create the environment conducive for financial institutions to lend more to small and medium scale enterprises (SMEs) in the country which often lacked access to credit. “The SME sector form about 90 per cent of the business sector in the country but lack access to credit not necessarily because they do not have collateral or security but also because of their knowledge of the market and so on. The law will assist the bank in making funds available to SMEs in the country,” Mr Adu told the Daily Graphic after a workshop for legal officers and managing directors of banks in the country. The week-long workshop, which also sensitised small and medium scale enterprises, business executives and some legal practitioners, was part of a road show to create more awareness on the Borrowers and Lenders Act, which created the Collateral Registry. The chief executive of CAL Bank said a study of the India situation indicated that their government introduced a similar borrowers and lenders act which doubled lending to the SME sector in 18 months. He said there were several provisions in the Act that gave comfort and confidence to financial institutions to lend to small businesses. “The law protects lenders and borrowers unlike what people think that it only protects the borrower. So the act must receive the support of everybody – banks, SMEs, the judiciary and so on. The judiciary must be trained to understand the law and its objectives,” Mr Adu stated. The bankers are, however, calling for a review of the existing Borrowers and lenders Act, 2008, Act 773 to review certain provisions that in practice proved difficult to enforce and also to make the law capture certain aspirations. For example, although the law provides for lenders to enter and realise registered collaterals without using the courts, borrower can use the court process to block the intended realisation of the asset by the lender. Mr Adu said indeed, the law should be reviewed to ensure that registered collaterals get legally governed only under the Act for as long as it remained registered in the collateral registry, adding that the provisions should also be made consonant with the existing court rules. The bankers also wanted the collateral registry to be configured such that collaterals would be automatically discharged from the registry once it serves the tenor of the loan to avoid the mistakes of keeping it there. The Ghana Collateral Registry is a place where financial institutions register collaterals offered to borrow money from them. The registry keeps a database that allows the financial institutions to search the system t establish whether the same collaterals have not been used to cover another borrowing. The system therefore reduces risk profile and allows banks to channel more credit to businesses. One of the greatest advantages of the Collateral Registry is the flexibility it allows lenders to accept movable items such as household appliances, vehicles, laptops, which hitherto could not be used as guarantees to borrow. Other items include inventory and receivables, investment property, business assets, household assets and machinery and equipment. Movables also include intangible properties such as patent, license, copyright, goodwill and financial instruments such as stocks, bonds and so on. Since SMEs often have access to movable assets rather than immovables such as landed property which the banks often demand for granting loans, the collateral registry regime can facilitate more credit flow to this sector of industry. The Deputy Registrar of the Collateral Registry, Mr Fred Asiamah-Koranteng, said at the workshop that since its establishment in 2010 till date, over 80,000 collaterals had been registered to cover more than 40,500 charges (transactions) and 12,407 searches had been conducted. He said those activities at the registry involved 150 financial institutions, including banks, rural banks, and non-bank financial institutions, which had led to 52 realisations.