Collateralization of intangible assets making - a case for micro, small and medium enterprises in Kenya

Abstract

Kenya has seen regulatory reforms in the spirit of easing the cost of doing business by overhauling various statutes regulating commerce. Some of these statutes considered in this Thesis include the Companies Act, (Act No. 17 of 2015), Insolvency Act, (Act No. 18 of 2015), the Moveable Property Security Rights Act, (Act No. 13 of 2017), Banking Act, (Act No. 25 of 2016) and the Data Protection Act, (Act No. 24 of 2019). This overhaul of statutes has elevated Kenya in keeping pace with the global community, creating conducive environments for the modern credit market. The most significant reform in these statutes is the recognition of intangibles as commodities of trade. From the preamble of the Moveable Property Security Rights Act, 2017 it is clear that the statute addresses the mistrust between Micro Small and Medium Enterprises (MSMEs) and formal financial institutions by creating a means of registering specific security rights in moveable property. However, despite the statutes being in place, there is need for a systemic shift towards alternatives to tangible collateral just like the market driven acceptance of mobile money. The similarities being that in both cases the collateral is intangible. A digital registry solves the dilemma of possession which makes tangible securities attractive by allowing identification, registration and publication of security rights so as to give notice to any participant in the credit market. This is the missing link which makes intangible collateral viable. In essence as secure digital registry unlocks credit flow to the starving MSMEs if embraced by the credit market.