Using personal property as collateral for loans
Personal Property as collateral for Loans
If you’re planning to come back home and start a business, do you know you can now borrow money against your goods and not just property? This is an exciting new development in Zambia following the enactment of the Movable Property (Security Interest) Act. With this new law in place, you can obtain a loan from a bank, financial institution or a lender using equipment, your vehicles, household goods and even intangible assets such as account receivables as collateral. The purpose of this law is to ease access to credit for individuals and small businesses that might not have property.
Before this law came into force, the biggest challenge to borrowing or lending against personal assets for financial institutions and lenders in Zambia was the lack of a registry where interests in personal assets could be registered and secured. So if your business is lending, you would be very reluctant to provide a loan to someone who offers you their vehicle as security because of the ease with which a vehicle can be disposed of, custody of the white book was your best bet of security. As a lender, you would probably feel safer lending against a house because you would be able to conduct a search at the Ministry of Lands to establish if that house is mortgaged. You would also be able to register your interest against the property through a mortgage. The new law mitigates the risks associated with lending against personal assets by establishing a Collateral Registry, similar to the Lands Registry, where a lender can register their interest in a personal asset. So if you plan on starting a financial business or a business lending money, you equally stand to benefit under this new law.
As a lender, you can register your interest at PACRA (Patents and Companies Registration Agency) which is the custodian of the Collateral Registry. PACRA is responsible for registration of companies and businesses in Zambia. Therefore, with the Collateral Registry located and managed by PACRA, it makes it that much easier to get all your business dealings taken care of in one place. The establishment of the Collateral Registry also means that there is now a centralised location where members of the public can conduct searches to establish if an asset is the subject of a loan.