CRIB goes for secured transaction registry

Charumini DE SILVA

Credit Information Bureau of Sri Lanka (CRIB) has embarked on a challenging task to implement an industry accepted state-of-the-art Secured Transaction Registry (STR).

This is also called the movable assets registry for the benefit of the SMEs in particular and the country and economy in general, Credit Information Bureau of Sri Lanka (CRIB) Director / General Manager, Gamini Karunaratne told Daily News Business. He said the key is to facilitate rapid repossession and recovery by the creditor whilst offering necessary protection to the debtor.

CRIB Director / GM Gamini Karunaratne

The creation of a true and comprehensive notice system for security interest in movable property will provide a great service to creditors and remove unnecessary obstacles to the transfer of property rights.

The STR will promote various economic activities in the country, especially in equipment, receivables, agricultural consumer financing and reduce the dependency of lending institutions on immovables as security for credit facilities, he said.

Under the recently introduced Secured Transaction Act No.49 of 2009, CRIB is designated as the implementing agency for establishing an on-line registry for movable assets as collaterals when granting credit.

There are two main purposes to be served by this STR registry.

I must provide notice to prospective creditors of the possible existence of a security interest in the collateral of a debtor. Discovery of a notice by a prospective creditor merely warns the prospective creditor to inquire further before making commitments to the debtor.

Secondly, the date of registration may serve as a date by which priority is measured, in the event of competing claims to the same collateral.

Prospective creditors who are offered equipment, inventory, accounts and documents of title as collateral must search registries to ascertain the existence of claims to the collateral, Karunaratne said.

One of the most important sources of credit for SMEs is secured finance. That is credit extended on the basis of collateral. The ability to obtain credit by means of secured transactions has special importance for SMEs because they often do not own land and buildings, nor do they have the credit rating or relationship, which enable them to access unsecured loans. Therefore, credit secured on movable assets is severely underutilized, mainly due to its high risks and transaction costs.

To unleash the flow of credit to SMEs , the rules governing the creation of security interests need to be made simpler and inclusive. This means, there should be only a minimum of cost and procedural formality in creating these interests consistent with maximum clarity and protection of rights.