Sierra Leone Collateral Registry to improve access to finance for MSMEs

 By Moses A. Kargbo

Minister of Finance and Economic Development and Governor of the Central Bank today jointly launched the Sierra Leone Collateral Registry, an electronic public database holding information on security interests in movable property.

The Registry is an initiative of the Bank of Sierra Leone with technical and financial support provided by the World Bank Group to improve access to finance, particularly for Micro, Small and Medium Enterprises (MSMEs). Established under Part II of the Borrowers and Lenders Act, the Registry is a web based system that allows lenders to search for any pre-existing security interests over movable assets provided as collateral. It facilitates the use of movable assets as collateral that may remain in possession or control of the borrowers and thereby improves access to secured finance.

 

Movable assets are the main type of collateral that MSMEs, especially those in developing countries, can encumber to obtain financing. Given opportunities in agribusiness among others, the Collateral Registry regime allows farmers and entrepreneurs to unlock significant sources of capital with assets that would otherwise not be looked at by lenders as potential collateral.

Minister of Finance and Economic Development, Momodu Kargbo, described the Registry as a key pillar for the growth of local communities.

He said MSMEs were identified in the Agenda for Prosperity and the Post-Ebola Recovery Plan as critical engines of economic growth for Sierra Leone but that they require strong support to grow with access to credit. He said empirical evidence has shown that across the world, access to credit was one of the biggest barriers facing MSMEs thereby preventing them from achieving their full potential.

“As a Government, we believe that facilities such as the Sierra Leone Collateral Registry must be tailor-made with the needs and aspirations of this segment of our population to enable them to contribute to economic development,” said Mr. Kargbo. “We are convinced that as MSMEs grow, they empower individuals and communities to achieve their full potentials, and hence raise the aggregate productivity and income which include supporting more dynamic economic growth.”

 

However, the Minister pointed out that access to financial services alone was not enough as it must be adapted to meet the unique requirement of MSMEs. He said the launch of the Registry was therefore “the right step in the right direction”, adding that he was particularly pleased that MSMEs can now on use their farm produce and cattle, among other movable assets, to secure “badly needed funding” to expand their agricultural activities.

 

World Bank Country Manager, Parminder Brar, said one of the top three challenges facing private companies operating in Sierra Leone was access to finance, referencing the 2016 Global Competitiveness Report published by the World Economic Forum. He said lending to the public sector in the country accounted for 18 percent of GDP, while lending to the private sector accounted for 5 percent of GDP, noting therefore that the bulk of the financing was going to the public sector.

“So the question is, how do we unlock financing for the private sector?” asked Mr. Brar. “One fundamental issue we need to deal with – whether it is fixed assets or movable assets – is the multiple systems governing land management in Sierra Leone. In the Western Area, there is a freehold system of land while in the rest of the country you have a leasehold system of land. Because we don’t have land titles very clearly defined then we have issues dealing with access to credit even using land as collateral.”

 

He said the Registry would serve as a vehicle in having small and medium enterprises to get access to finance not only with their movable assets but also using motor cars, inventories and crops. He reiterated that the Registry would allow farmers to have access to capital using their produce as collateral.

 

The Bank of Sierra Leone approached the World Bank Group in 2014 to help set up the Registry and the Bank Group, working closely with the Department for International Development (DFID), provided US$800,000 towards the effort. The rest of the funding, Brar said, came from the Government of Sierra Leone through the Central Bank.

 

“This is a wonderful opportunity and a step forward. Unlocking finance means removing the constraints that SMEs have and creating more jobs for the people of Sierra Leone,” he said, pointing out that less than six countries in Africa have a Collateral Registry, and Sierra Leone was one.

 

In his keynote address, Acting Governor of the Central Bank, Dr. Ibrahim Stevens, said the launch of the Registry was a significant milestone in their efforts to improve access, especially to MSMEs. He said the key initiative was to create a Collateral Registry for movable assets, which he said was part of the broader objective of financial sector development by the Central Bank and other key stakeholders in the economy.

 

He said they were at the final stages of completing a financial sector development plan, and that by November, they would have concluded the first generation of financial program. “So the Collateral Registry is just one part of this broader objective to harness the potential of the financial sector in order for us to contribute meaningfully to the development of our economy,” said Dr. Stevens.

 

The establishment of the Registry, he went on, has created a diverse and multifaceted platform that is supported by the appropriate legal and regulatory framework “for the average man to register movable property as collateral when obtaining credit”. He said to address the important issue of consumer protection, they were working with partners to establish the Office of the Financial Ombudsman, which will provide an alternative dispute resolution mechanism for both borrowers and lenders.

 

Moreover, the Collateral Registry is critical because it allows lenders to better assess the status of the loan applicant’s assets and its potential priority as against other security interests. For instance, before taking a security interest in the equipment the borrower offers as collateral, the lender should search the Collateral Registry to make sure no other lender already has a security interest in that collateral.

 

Statements were also made by the President of the Sierra Leone Association of Commercial Banks and the Chief of Staff in the Office of the President.

 

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