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A new way to get credit



MASERU– IT is now possible to use livestock, household equipment and jewellery as collateral to secure loans. This is thanks to the launch of the Lesotho Electronic Registry Interest of Moveable Assets (Lerima) last week. Lerima allows creditors to register movable assets they want to use to secure loans. This means the creditor cannot sell the assets once it has been used as collateral. Lerima gives the bank confidence that a movable asset will not be sold before the loan is cleared. Also, the bank cannot also confiscate the asset willy-nilly. The value of the asset is known to the lender and the creditor, which ensures that the interests of both parties are protected. The main beneficiaries of Lerima are likely to be micro, small and medium enterprises (MSMEs) that have always struggled to access credit from financial institutions that demand collateral in the form of real estate. MSMEs, whether registered or not, are considered the mainstay of the Lesotho economy. “We are trying to have the private sector, especially the SMEs, use their moveable assets as collateral to access credit,” said the CBL Governor, Dr Retšelisitsoe Matlanyane, during the launch of Lerima. Lerima, whose core purpose is to stimulate the uptake of credit finance for the development of the small business sector and lowering the risk for lenders, is part of financial reforms led by the Central Bank of Lesotho (CBL) with the technical support of the Private Sector Competitiveness and Economic Diversification Project (PSCEDP). Dr Matlanyane said lack of access to finance remains “an epidemic problem in Lesotho and other countries in Southern Africa”. She said allowing the use of movable assets as collateral will help small companies and individuals to get loans to either start or grow their businesses. According to the CBL, the credit market is currently dominated by large businesses and employed individuals while the 118 000 MSMEs employ more than 130 000 remain in the periphery. The apex bank believes access to credit will unlock the potential of MSMEs to scale up their operations, employ more people and increase their contribution to the economy. Lerima is part of the PSCEDP’s efforts to improve the business environment and increase access to finance. The Finscope study of 2016 for Lesotho revealed that business owners generally use a combination of financial products and services to meet their financial needs. And only 21 percent (about 16 000) of business owners rely exclusively on banking services. It says around 18 percent use a combination of formal and informal mechanisms to manage their financial needs, thus indicating that their needs are not fully met by the formal sector alone. While 20 percent (15 000) of the small business owners only rely on informal mechanisms such as saving groups and loan sharks. Lerima could change all that by making it easy for small companies to borrow from the formal market. The director of the Consumer Protection Association, Nkareng Letsie, said Lerima comes at a time when small businesses are desperate for credit to revive their operations that have been hit by the Covid-19 pandemic. “Our Partial Credit Guarantee schemes also need to be modified to become more accessible with minimized risk,” Letsie said during the launch. Fako Hakane, the Secretary General of the Lesotho Chambers of Commerce and Industry (LCCI), said the lack of access remains one of the biggest impediments to economic growth. The World Bank’s Ease of Doing Report has consistently pointed to the lack of credit as one of the biggest challenges for small businesses. A collateral registry is a facility that registers security interests and collateral created by borrowers using movable property to secure credit facilities provided by lenders. Similar registries significantly improved the flow of credit to small companies and individuals in countries like Liberia, Uganda and Colombia. Lemohang Rakotsoane

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