Loan against movable assets

A new bill providing for loans against movable assets has recently been placed in parliament. Apparently a facilitating move to put in place an instrument for easing access to credit, the bill appears to simplify the mechanism of lending by banks and financial institutions without resorting to collaterals-a standard practice reliant on the value of immovable assets for determining credit worthiness of  the borrower as well as recovery of the amount given as loan. In other words, the bill also aims to bring movable property under the definition of collateral for bank loans. The bill titled Secure Transactions (of Moveable Assets) Bill, 2023 is indeed a fresh approach to redefine the credit regime of banks and financial institutions. Finance Minister AHM Mustafa Kamal placed the bill, which was sent to the respective scrutiny committee for further examination. If the bill gets enacted, fixed deposits or movable property like gold, silver and intellectual property can be used as collateral for loans from banks and financial institutions. However, a movable property must be registered for mortgage. For this purpose, it was been decided to form a separate authority for registration of movable assets so that valuation is possible, as mentioned in the proposed law.

With the new Secured Transactions Bill 2023, banks would be able to hold floating assets to market value as collateral instead of tangible assets to borrow from banks. According to the proposed law, from now on, anyone can take loan against fixed deposits in banks, gold and silver or raw materials kept for export. Anything that is copyrighted can be pawned to the bank. Also, products like furniture, electronics, software and apps can also be kept with the bank while taking a loan, subject to pricing. Besides, banks would also give loans against fish in ponds, garden trees and cattle.

Looking a bit critically, there is a flip side that may not seem as rosy. In fact, what transpires from the text of the bill has more to it than easing access to credit, and it is quite likely that the move will be fraught with problems complicated enough to aggravate the regime of already burdensome non-performing loans (NPLs). While immovable collaterals, despite being a reasonably sound method of protecting loans has not yet proved flawless to recover loans on time and are often subjected to rescheduling, taking movable assets as collaterals may cause undesirable problems for the banking sector. It is the pricing that is likely to come up as a contentious issue. There is also an element of uncertainty when it comes to determining the valuation of assets like cattle, fish in ponds, or household articles-to name a few of the movable assets, as mentioned in the text of the bill.

Given the situation, a good deal depends on the committee assigned to examine the bill. It is expected that the committee, while undertaking its scrutiny, would consult banks and financial institutions in order to deal with the bill on the basis of consensus.