Kathmandu, August 4
Ministry of Finance (MoF) has prepared the draft of Secured Transaction Regulation to finally resume the long-delayed process of establishing an office to extend loans on the back of movable assets.
“The process of bringing Secured Transaction Registry Office into operation was delayed because of lack of regulation. We have now prepared the draft of the regulation and will forward it to the Cabinet in the next two weeks,” Krishna Prasad Devkota, head of the Economic Policy Analysis Division at the MoF, told The Himalayan Times, without disclosing the content of the legal document. “Once the regulation is endorsed, the office will formally come into operation.”
The office, located at Credit Information Centre Ltd (CICL), was supposed to come into operation in mid-June, 2015. But the plan was stalled due to the devastating earthquakes of April and May. CICL then made preparations to start operation of the office in the second week of August, 2015. But CICL failed to meet that deadline as well.
“Earlier, we were mulling over bringing the office into operation without introducing the Secured Transaction Regulation, as Secured Transaction Act, endorsed in 2006, was in place. We later realised that day-to-day businesses of the office might be affected if we started its operation in the absence of the regulation,” Devkota said.
Many have long been waiting for the establishment of the Secured Transaction Registry Office as there is no place to register movable assets at present. Lack of such a facility has created roadblocks for individuals and small and medium enterprises from gaining access to capital, as they cannot always pledge fixed assets, such as land or buildings, to obtain credit.
Once the office comes into operation, anyone can register any type of movable asset, including fast-moving consumer goods, livestock and agricultural produce, as collateral and obtain loans from any individual or firm.
The registration process can be completed online and upon payment of Rs 500. Also, two parties — the borrower and the creditor — should sign an agreement, clearly mentioning intervals at which instalments have to be paid, the payback period, and the party that will bear certain expenses, like insurance cost, and taxes or fees associated with the collateral.
This facility will enable even a farmer based in far-flung areas, such as Bajura or Mugu, to register goats, cows or paddy as collateral to legally obtain loan from another village resident. This was not possible in the past, as entities that were not registered at Nepal Rastra Bank were barred from extending credit.
The office will also enable banks and financial institutions to ascertain whether the same movable asset has been pledged as collateral in another institution to obtain loans. This means registration of movable assets will reduce risks associated with credit extension and allow banking institutions to take informed decisions.
A version of this article appears in print on August 05, 2016 of The Himalayan Times.