Central Bank, Private sector move to ease access to finance

Lemohang Rakotsoane

MASERU

SOON you might be able to use your cow, sheep, laptop, couch or mobile phone as collateral for a business loan.

That is if the Central Bank of Lesotho (CBL) and the Private Sector Competitiveness and Economic Diversification (PSC) get their wish.

And it looks like the idea, outlandish as it might seem, is already about to become a reality.

The central bank and the PSC are working together to build a secured transaction and collateral registry that will ease access to finance for individuals and Small Medium and Micro Enterprises (SMMEs).

“We are building a secured transaction and collateral registry, it is going to keep data of movable property that is to be used for collateral for accessing credit from banks and microfinances,” Bafokeng Noosi, head of Non-Banks Supervision at the CBL, said.

“Property will vary from cows, laptops to phones and other furniture even money that is expected to be received from somewhere,” he said.

Noosi was speaking at the review of progress of the secured transactions and collateral registry project on Thursday last week.

He said the system which is part of the financial sector reforms is aimed at easing access to finance for a lot of Basotho who were previously not able to get credit due to lack of collateral.

“CBL received a lot of cases whereby people’s properties had been illegally possessed by those running microfinances when they failed to pay their debts,” Noosi said.

“Now we are going to do it in a legal way to avoid possession of people’s property illegally. People will pledge their movable property as collateral and the system will not allow people to pledge the same property to different institutions as whatever property has been pledged will be in the system,” he said.

He emphasised that currently people go from one financial institution to the next with the same payslip to ask for credit giving false impressions of their ability to pay back the credit.

Noosi noted that it is their hope that this system will be used more by SMMEs more than individuals “as they will be getting credit for investment purposes and not for consumption”.

He said the legal and regulatory side of the reforms are close to completion. What is left, he said, is vigorous awareness campaign and training for retailers, mobile phone operators, judges, lawyers and the public.

Thabo Qhesi, chief executive of the Private Sector Foundation of Lesotho, a lobby group, said this initiative will remove several bottlenecks and ensure that a lot of SMMEs get the financial help they need.

“It is a good system. However, I foresee a challenge in terms of people ascertaining that the property is really theirs. Otherwise this initiative will have a big impact because currently when you do not have land, building or vehicles it is a challenge to get credit even if you have machinery,” Qhesi said.

“So, this will enable those SMMEs with only machinery, stock and furniture to get credit,” he said.

The secured transactions and electronic collateral registry is one of the reforms being undertaken to address bottlenecks within the financial sector.

According to Keith Whitelaw, a consultant lawyer who was speaking at the meeting, the system should encourage users to participate and not just be about the government telling people what to do in order for it to be successful.

Whitelaw said a study that was carried out in 2014 showed that only 16.6 percent of Basotho adults had access to credit and most of this credit was only in retail.

Whitelaw further indicated that working together the bottlenecks around access to finance can be addressed and help SMMEs contribute more to the economy of the country.

“Where I come from (Europe) a huge percentage of the economy is attributed to SMMEs and that can be the case here as well,” Whitelaw said.

He said accessibility, affordability and time saving are among the characteristics of a good secured transaction and collateral registry.

Chaba Mokuku, the Project Manager of PSC, said the secured transactions and collateral registry is a project that is aimed to be a response to several challenges.

“The first challenge is that the government has a very high wage bill, the government is the biggest employer and we have a very weak private sector. In normal circumstances, the private sector should be the one generating employment and stimulating the economy,” Mokuku said.

“Then we realised that the private sector is weak because of the unfavourable business environment, the overall investment climate is not favourable from starting a business to operating it. It’s a struggle,” he said.

“The unfavourable investment climate is due to unfavourable laws governing business and also access to credit.”

Mokuku specified that access to credit is not only a challenge for SMMEs but for individuals as well.

“A lot of businesses especially SMMEs and individuals do not have the collateral required by banks. Banks require land with a lease or a house for collateral both being immovable collateral and because of the nature of SMMEs and some individuals they do not own any of the above because they are still struggling to make ends meet,” Mokuku said.

He said it was due to the above mentioned challenges that they researched and learned that in other countries they use movable collateral as a means to get credit and it allowed even those who did not have immovable property access to credit, giving them a chance to partake in stimulating the economy.

“But for that system to work properly there has to be a mechanism in place to ensure that the system yields favourable results,” Mokuku said.

He said the secured transaction and collateral registry is designed in a way that lenders will be able to have a specific control of the property that is being used as collateral so that even if the borrower wants to use it as collateral to different lenders he/she cannot be successful as it will be in the system already.

“It is our hope that if this system works well it will promote financial inclusion as a lot of people will be borrowing money to invest in business and stimulating the economy,” Mokuku said.

The system has been used successfully in other countries like Liberia, Ghana, China and Seychelles.