Table of Contents Page

Chapter- 1
1) Introduction..........................................................................................................................1
1.1) Background..................................................................................................1
1.2) Statement of the problem.............................................................................3
1.3) Research questions………………………………………………………...3
1.4) Objectives…………………………………………………………………3
1.5) Hypothesis…………………………………………………………………3
1.6) Methodology………………………………………………………………3

Chapter- 2
2) General overview of movable asset security right…………………………………………….….4
2.1) Purpose of introducing movable asset security registries…………………….……4
2.2) The practice of movable asset
securitization……………………………………………..................................5
2.3) Ethiopian bank(s) credit policy visa-vice movable property security right
………………………………………………………………………………...7
chapter- 3

3) Movable Asset Security Law for Ethiopia: What Is New About It……………................................8

3.1) Key improvements of the newly enacted proclamation on movable property

security…………………………………………………………………………………….9
3.2) Assessment on Operationalization of movable collateral registry directive No.
MCR/01/2020…………………………………………………………………….….13
3.3) Assessment on the Draft guideline on movable properties to be pledged as collateral for
loan………………………………………………………………………….…...........14
3.4) Possible challenges to implement movable asset security law of
Ethiopia……………………………………………………………………...…………….…15
Chapter- 4

4) Conclusion and Recommendation………………………………………………………….…………16

4.1) Conclusion……………………………………………………………………………........16

4.2) Recommendation…………………………...…………….…………………………….…...17

Bibliography…………………………………………………………………………………………......18
Chapter -one

1) Introduction
1.1) Background

Before discussing the details of movable asset security, for the sake of simplicity the writer prefers
to define what security of movable asset is. Different literatures and laws used security of movable
asset interchangeably with pledge of movable asset. The writer also agrees with practice of using
those terms interchangeably.

Though it is very difficult to have a single whole definition of what security of movable asset or
pledge of movable asset is, for example when we see the definition given by Black’s Law
Dictionary, 8th ed. 2004 it defined pledge as, “A security interest in personal property represented
by an indispensable instrument, the interest being created by a bailment or other deposit of personal
property for the purpose of securing the payment of a debt or the performance of some other duty.”1

Coming to the Ethiopian scenario, the civil code defines as follow,

Art. 2829 - Pledge

(1) The pledge may consist of a chattel, a totality of effects, a claim or another right relating to
movable property.

(2) It must be capable of being sold separately by public auction.2

Movable property security right proclamation No. 1147/2019 Art. 2(44) defines security right as;

Security right means a property right in movable property that is created by an agreement to
secure payment or other performance of an obligation, regardless of whether the parties have
denominated it as a security right, and regardless of the type of property, the status of the grantor
or secured creditor, or the nature of the secured obligation.3

1
Gadissa Tesfaye and mebrathom fetewi, Law of sales and security devices teaching material, (2009) 114
2
Ibid, 132
3
Movable property security proclamation No.1147/2019, Federal Neg. Gaz.25th Year No.76, 7th Aug. 2019,
Art. 2(44)
In addition to those laws, the commercial code of Ethiopia also tries to discuss about pledge of
securities starting from Art. 950 and the subsequent provisions.

Therefore, what we can conclude from the above definitions is that, pledge/security/ of movable
asset doesn’t have a universally agreed definition but what they do is defining it in relation to the
nature of the thing being securitized and its purpose.

Having saying all this about the definition of movable asset security, Access to credit persisted
one of the topmost obstacles to micro small and medium enterprises (herein after called MSMEs)
doing business in throughout the world. Due to the fact that financial institutions basically prefer
lending against fixed collateral, most studies in the past try to look at the impact of fixed collateral
assets on access to finance.
In addition to the above reason, despite the importance of collateral in enabling private lenders to
offer larger loans with less risk and therefore at lower interest rates, legal and regulatory barriers
make movable property nearly useless as collateral in many Bank client countries
Three legal and regulatory issues are of key economic importance in limiting security interests in
movable property those are: The creation of security interests, the perfection of security
interests and the enforcement of security interests.
However, recent studies found that majority of MSMEs keep their assets in movable assets, and
as a result there has been a gradual reform on movable assets across many countries of the world
based on the advice of World Bank and International Financial Corporation.
Unlike fixed assets, such as land and buildings, moveable assets account for most of capital stock
of private firms and comprise significantly large share assets of micro, small and medium-size
enterprises.4
In Ethiopia, the time for secured transactions law reform has been stretched overdue. The reason
is due to the main body of the Ethiopian secured transactions 1aw incorporated in the Civil Code
and the Commercial Code of 1960, augmented by successive fragmentary adjustments through
various laws has been obviously economically inefficient. i.e. movable asset security was not

4
Danjuma Ahmad, ’Can introduction of collateral registries for movable assets super firms’ access to
credit in Nigeria’ (2018) V (Xii) IJRSI <https://www.researchgate.net/publication/331035282> accessed
22 June 2020
implemented in its full-fledged sense until the promulgation of the newly enacted law called
movable property security right proclamation No. 1147/2019.
1.2) Statement of the problem

It is true that having comprehensive reform about movable asset security enhance access to
finance. That is movable asset security reforms can help to reduce the asymmetric information that
lenders face if loans are extended to micro, small and medium enterprises in Ethiopia. However,
certain obstacle hinders the successful operation of the reform. These are lack of awareness, poor
implementation of the law, limited access to financial institutions, lack of financial education and
technical issues.
1.3) Research questions

This term paper is conducted to answer the following questions: -

✓ What is new on the Ethiopian movable asset security reform?

✓ Are the owners of the movable asset and in need of finance aware about the reform?
✓ What are the prospects of the Ethiopian movable asset law?
✓ What are the challenges for movable asset security laws in Ethiopia?
1.4) Objectives

The general objective of this term paper is to analyze laws that deal with movable asset security
in Ethiopia and to examine the new points incorporated under those laws. In addition to this,
the paper will explore the prospects and challenges of movable asset security right laws.

1.5) Hypothesis

Though it is recent phenomena for Ethiopia to have separate movable asset security law, there are
practical and legal challenges that hinder from proper implementation of the notion of movable
asset security.

1.6) Methodology

The paper is consisting of both doctrinal and quantitative research approach. Regarding the method
of data collection, both primary and secondary sources will be used. Primary data examining
different laws that deals with movable asset security. secondary sources will be books, journal
articles, and other materials about the laws.

Chapter – 2

2) General overview of movable asset security right

2.1) Purpose of introducing movable asset security registries

Movable asset security in general facilitate the relations between creditor and debtor. And
practically they smoothen the relationship among the parties. This can be conquered through
assuring the creditor that the debtor will pay the debt or perform his obligation to the satisfaction
of the creditor; if the debtor fails to pay or discharge his obligation, then the security right of the
creditor will be enforced to satisfy the claim of the creditor. This will help to avoid or at least to
reduce the potential damage a creditor suffers as a result of non-performance.

Movable assets often account for most of the capital stock of private firms and comprise especially
large share for micro, small, and medium-size enterprises. Hence, movable assets are the main
type of collateral that businesses, especially those in developing countries, can pledge to obtain
bank financing. While a sound legal and regulatory framework is essential to allow movable assets
to be used as collateral, without a well-functioning registry for movable assets, even the best
secured transactions laws could be ineffective or even useless. 5

Overall, we find that introducing movable collateral registries increases firms' access to bank
finance. In particular, our baseline estimations indicate that the introduction of registries for
movable assets is associated with an increase in the likelihood that a firm has a bank loan, line of
credit, or overdraft; a rise in the share of the firm’s working capital and fixed assets financed by
banks; a reduction in the interest rates paid on loans; and an increase in the maturity of bank loans. 6

5
Maria Soledad Martinez Peria,’does introduction movable collateral registries increase firms access to
finance’(2013) all about finance <https://blogs.worldbank.org/allaboutfinance/does-introduction-
movable-collateral-registries-increase-firms-access-finance>accessed 25June2020
6
Ibid
Therefore, introduction of movable asset security helps corporations that have little or no tangible
assets are able to obtain significant funding without selling a significant portion of the ownership
of the corporation.

The impact of the introduction of movable collateral registries is economically significant: registry
reform increases access to bank finance and access to loans by large percentage points. There is
also some evidence that the impact of the introduction of registries for movable assets on firms’
access to bank finance is larger among smaller firms, which also report a reduction in a subjective,
perception-based measure of finance obstacles.

2.2) The practice of movable asset securitization

The unavailability of assets is frequently not the problem; rather, it is the inability of the legal
framework to facilitate the use of those assets as collateral. This is only the starting problem, and
many others must be addressed, including the lack of capacity and expertise to develop and provide
credit products. In the developing world, movable assets such as equipment, inventory and
receivables represent about 78 percent of the capital stock of an enterprise, while immovable
assets represent only 22 percent. However, financial institutions overwhelmingly prefer
immovable assets as collateral.

Although credit, to some extent, is available in all economies, in many of them the security devices
are costly to deploy and do not offer effective protection against credit risk, resulting in
incompatible claims that must be resolved in lingering court proceedings and impeding the
development of modern credit products for the economic activities of the 21 st century. Hence,
lenders regularly take immovables as the principal collateral, although often taking the movable
assets as secondary collateral to signal the commitment of the grantor, rather than providing an
alternative source of loan repayment. Relatedly, the loaned amount is not correlated to the value
of the movable collateral; it depends entirely on the value of the immovable collateral or the
borrower’s revenue generating capacity.

Establishing a legal and regulatory environment where movable assets can be used effectively as
collateral and, at the same time provide effective credit protection, is a critical step towards
responsible and inclusive access to finance. Even in developed economies where reliable credit
information and a wide range of financial products are available, only the largest and most
creditworthy businesses can obtain unsecured loans. The rest are expected to offer collateral. A
sound legal and regulatory infrastructure is critical to maximize the economic potential of movable
assets so that they can be used as collateral.7

Experiences from secured transactions reforms in the last decade indicate that MSMEs in countries
that have stronger secured transactions networks have greater access to credit, at a lower cost, with
a positive impact on productivity and economic growth. Economies that have modernized secured
transactions ecosystems have achieved a higher degree of development of their credit systems by
making the use of movable collateral more operative.8
Lenders, especially regulated financial institutions, should be equipped with appropriate legal
instruments, sufficient capacity, and regulatory incentives to engage in movable assets secured
transactions, particularly of a commercial nature. Moreover, such secured lending should promote
sound management of credit risk in compliance with applicable regulatory standards. Recently
completed secured transactions law reforms have produced mixed results in terms of promised
credit growth, financial inclusion, and facilitating sound risk-management practices. Although
statistics concerning the usage of newly implemented collateral registries generally indicate an
increase in registrations, closer analyses often reveal that a large portion of registrations relate to
consumer financing of cars, while only a small percentage pertain to commercial asset-based loans
secured by equipment, inventory, or receivables.9

7
Giuliano Castellano and Marek Dubovec,’ Credit creation: Reconciling legal and regulatory incentives’
(2018) 81(63) Law and contemporary problems <https://lcp.law.duke.edu/article/credit-creation-
castellano-vol81-iss1/>accessed 23June2020

8
International finance corporation, ‘secured transaction systems and collateral registries (2010)
<https://www.ifc.org/wps/wcm/connect/d74da177-192e-49bc-a69a-
716cfb95b0c7/SecuredTransactionsSystems.pdf?MOD=AJPERES&CVID=jkCVsiF>accessed
20June2020
9
World Bank group, ‘Secured transactions collateral registries and movable asset based financing’ (2019)
Federal department of economic affairs, education and research EAER state secretariat for economic
affairs (SECO), <http://documents1.worldbank.org/curated/pt/193261570112901451/pdf/>accessed
28May2020
2.3) Ethiopian bank(s) credit policy visa-vice movable property security laws
The writer of this paper informally conducted interview via phone with five persons working in
different banks of Ethiopia about the content of credit policy of their respective banks as to security
of movable asset. They all give almost similar response i.e. as the credit policy of bank is not
modified in accordance with the new proclamation on movable property security right. Moreover,
as the writer is an employee at Lion International bank S.c, he selects lion international bank S.c
(herein after called LIB) as sample bank for simplicity and examine the content of credit manual
of selected bank in line with movable asset security right laws.
Lion international bank has a policy that deals with credit process and collateral named Lion
international bank credit processing procedure (volume iii) June 2018. It has around 160 pages
with detailed rules. The procedure defines collateral as an asset that the bank holds to mitigate
default risk. It also says movable or immovable assets to be offered for collateral shall be those,
which are readily marketable, accessible, and relatively stable in value, easy transferable,
functionally versatile and insurable.10
The credit procedure puts two types of collateral. Those are collateral which are acceptable and
can be registered and collateral which are acceptable and cannot be registered by registrar office.
Collateral which are acceptable and can be registered with a legally empowered registrar, include
real properties (premises, buildings and houses), motor vehicles and corporeal elements of
business entities. 11
Acceptable collateral, which may not be registered by registrar office, includes merchandise, bank
guarantee and deposit in LIB branches, negotiable instruments (cash surrender value of life
insurance policy, treasury bills, and share certificate excluding LIB share certificate,
corporeal/personal guarantee, and valid import and export document.12
Here, what we can understand from the above contents of the LIB credit policy is, the banks have
not made any kind of change in accordance with the new movable property security right laws.
Moreover, the contents of LIB credit policy is not compatible with movable asset security laws.

10
Lion international bank credit processing procedure (volume iii) June 2018, page 103
11
Ibid,104
12
Ibid,105
Chapter -3
3) Movable Asset Security Law for Ethiopia: what is new about it

In Ethiopia, the time for secured transactions law reform has been stretched overdue. The reason
is due to the main body of the Ethiopian secured transactions 1aw incorporated in the Civil Code
and the Commercial Code of 1960, augmented by successive fragmented adjustments through
various laws has been obviously economically inefficient.
The 1960 Civil Code, Book Four Title 17 particularly Articles 2825 to 2874 specifically address
the issue of security right formed in movable and intangible things. According to the Code, security
right created in movables always emanate from contract.13 Consequently, the articles afford for
minimum terms and conditions of contract of pledge which must be satisfied by contracting parties
such as compulsory transfer of the pledge into the creditor/pledgee, obedience to strict procedures
during foreclosure of the thing upon default, etc. Mandatory provisions pertaining to such issues
created difficulties to creditors in their effort to execute the security right on obligation that they
are owed by their debtors. With a view to doing away with the intricacies faced by bank creditors
in the course of enforcing their movable security rights, amending proclamation came into
existence in 1998 and 2000. The Proclamations are Proclamation to Provide Property Mortgaged
or Pledged with Banks No 97/98, a proclamation to amend the property mortgaged or pledged with
banks proclamation No. 216/2000 and proclamation to provide for business mortgage 98/98. Those
proclamations were enacted to abolish the long time and procedural red tape which used to take to
obtaining judgment for sale of property mortgaged or pledged by banks. Comprising of only few
articles, the proclamations relieved bank creditors from resorting to courts to secure authorization
for sale upon on non-performance.
This characterized the move of judicial foreclosure prescribed in the Civil Code into power of sale
Foreclosure. Non-bank creditors however were yet to pass through the awkward trials taken to get
into execution of security rights. The proclamations were intended to govern both movable and
immovable securities encumbered by banks.

13
Civil Code of The Empire of Ethiopia proclamation No.165/1960, Federal Neg. Gaz.19th Year No.2, 5th May1960,
Art 2825
However, the proclamation had two basic weaknesses which makes it far from being suitable.
Firstly, it was only applicable with respect to bank creditors as a result non-bank creditor were
discriminated against. Secondly, the only improvement it brought was in relation to proceedings
after default. It repealed only Articles 2851 and 3060 of the code which prescribe securing of
authorization from court in order to foreclose on the property pledged or mortgaged in the presence
of third party appointed by courts.
The Civil Code prerequisite of delivery of pledge into the hand of creditor upon or after conclusion
of contract was left intact as mandatory requirement. The requirement creates inconvenience on
the part of the debtor because the property was kept away from economic use while it stays in the
hand of the creditor. As a result, property owners were unable to use their movable assets as
security thereby affecting their access to finance which is very important for various types of
investment and means of livelihood.
However new proclamation was enacted in 2019. This proclamation is known as Proclamation to
Provide for Movable Property Security Right Proclamation No. 1147/2019. It has introduced
important reforms which overhaul the movable security law by alleviating major weaknesses in
the existing laws.

3.1) Key improvements of the newly enacted movable property security right
law
The proclamation under Article 93 clearly declares the non-applicability of its predecessor
Proclamation on Property Mortgaged or Pledged with Banks No 97/98 partly, the Stamp Duty
Proclamation No. 110/1998 partly and proclamation to provide for business mortgage No. 98/98
fully. Moreover, the proclamation declares the non-applicability of any laws which are inconsistent
with it.
In addition, the law has envisaged the establishment of collateral registry office which is charged
with duty of receiving, storing and making information accessible to the public in registered
notices with respect to security rights and rights of non-consensual creditors which departs from
the previous laws.
The other departure is the proclamation come up with a provision governing collateral registry and
registration expect electronic registration, with no parallel paper-based registration system. One of
the narrations of the law highlights under its preamble is that establishing single comprehensive
electronic registration regime for secured transactions in movable property to determine priority
rights among competing claimants is necessary.14
A1l of its provisions are devoted to the particulars on how to fi1e the registration including,
creating a user account at the collateral registry. There is no single provision dedicated to paper-
based registration in proclamation. It can therefore be concluded that, the new proclamation is
intended to implement exclusive electronic collateral registry.
Despite not having a room for paper-based registration, most important benefit of electronic
collateral registries lies on the fact that it simplifies filing and lower likelihood of data entry errors.
And in a situation where multiple registries exist within a country, such as between separate
geographic regions, electronic collateral registries enable faster transmission of data between
registries and effectively create a single unified registry. Electronic collateral registries also unlock
the opportunity for improved access to the registry as well as improving access to financial lending
in the rural areas by transmitting documents electronically. Electronic collateral registries have
been found to have improved transparency within the system, because financial institutions and
borrowers can search even from far location to ensure the accuracy of pledges filed in the name of
any given borrower.15
Therefore, the introduction of digital registry system by the proclamation circumvents the burden
of having to deliver the thing to creditor and the antagonistic effects associated with it. Elimination
of duty to deliver by the proclamation creates convenience to any debtor because it enables him to
simultaneously charge the property as collateral and manipulating it to derive the normal service
from it. Likewise, the creditors benefit from such registration of security agreement because, they
will be freed from duties associated with the taking custody of the movable security.

14
Asress Adimi Gikay,’ Examining the Suitability of the Draft Ethiopian Personal Property Security Rights’
Law to the Local Context’(2018) 2 Hawassa University Journal of Law
<https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3113728 > accessed 24 June 2020

15
Danjuma Ahmad, ’Can introduction of collateral registries for movable assets super firms’ access to credit in
Nigeria’ (2018) V (Xii) IJRSI <https://www.researchgate.net/publication/331035282> accessed 22 June 2020
This is because the Civil Code imposed on creditors duties to preserve the thing, to bring
possessory action in case of assault or misappropriation by third party while the thing is at his
hand.16
But under the new proclamation, the obligation which was incumbent upon pledgee only has now
been imposed on condition of who is the one in possession of the collateral in accordance with the
contract.17
The other departure is provision authorizes secured creditors in possession of the collateral to make
use of the good reasonably which applies against the payment of secured obligation. This is against
Article 2840 of the Civil Code which in principle prohibits the use by pledgee of the good at his
custody.18 Another, important concept introduced by the Proclamation beneficial to creditor is
right to pursuit. In the Civil Code, the transfer of the pledge to third party terminates the security
right over the thing transferred. This is consistent with the notion of acquisition in good faith that
any person who acquired a movable thing with a lawful means is entitled to original ownership.
However, the Proclamation limits this notion by making security rights effective against third party
purchasers, lessees or licensees of the collateral.19
The other important departure is that, The Proclamation does leave with the requirement of 1%
stamp duty that was applicable on transactions that create security right over movable property.

The predecessor’s laws were not allowed for single notice relating to security right created, but
The Proclamation allows the registration of a single notice relating to security rights created by
the grantor under one or more than one security agreements with the same secured creditor.

In addition, unlike the civil code and the successive proclamations, the subject matters of movable
asset security become so broad in the new proclamation. For example, it is for the first-time
security right of intellectual property unequivocally incorporated.

16
Civil Code of The Empire of Ethiopia proclamation No.165/1960, Federal Neg. Gaz.19th Year No.2, 5th
May1960, Art. 2842
17
Movable property security proclamation No.1147/2019, Federal Neg. Gaz.25th Year No.76, 7th Aug.
2019, Art. 66
18
Ibid, Art. 68
19
Ibid, Art 54 and 41
With regard to execution of security rights on movable assets, the Proclamation adopted power to
sale foreclosure. This makes it similar with its predecessor Proclamation No 97/98 and 98/98.
Though the former proclamation has been emphatically repealed by the proclamation, the liberal
mode of foreclosure it envisaged was retained. The difference lies in the duration for default notice
given to the debtor/grantor before setting the execution at motion. The former proclamations
prescribe giving of prior notice 30 days before selling. The new Proclamation reduces this duration
to only 10 (ten) working days.20
The content and manner of notification of disposition of the collateral is also different from the
former repealed laws. Accordingly, the newly enacted law requires for a secured creditor to give
notice to any person with right in the collateral that notifies in writing the secured creditor of those
right, any other secured creditor that registered a security right notification with respect to the
collateral and any other secured creditor that was in possession of the collateral at the time when
the enforcing secured creditor took its possession.
Moreover, the proclamation obliges for the secured creditor to incorporate the manner of
disposition in the notice. This shows as the secured creditor is at liberty to choose the manner of
disposition of movable asset collaterals.21
Unlike the previous laws, non-bank creditors are also allowed to execute security rights on
movable assets and give equal power as bank creditor.
The last but not the least, the powers of various ministries which were endowed with registration
of security rights over movable property by virtue of different proclamation are taken away and
given to Collateral Registry Office that will be established pursuant to the Proclamation and
Regulation there under.22

20
Ibid, Art. 83
21
Ibid
22
Kirso hailesilassie,’review of the new proclamation to provide for movable property security right’
(2019) FLS law office<http://www.flslegalservices.com/2019/12/26>accessed 23June2020
3.2) Assessment on Operationalization of movable collateral registry directive
No. MCR/01/2020
The newly enacted directive is come to make effective for movable property security right
proclamation and it has 22 (twenty-two) provisions. When we examine it, it is almost an extension
of the proclamation, with detailed provisions. It announced the establishment of movable collateral
registry office and housed it in the national bank of Ethiopia.
It has provisions governing duties and responsibilities of banks, microfinance institutions and
capital goods finance companies.23

The directive has also incorporated provisions that deal with service fee. And it requires every
person to pay service fee. The amount required for service fee depends on the type of service
required by the service seeker. But for the sake of general information, the minimum amount of
service fee is 30 birr and the maximum amount is birr 200.

The directive requires any information in notice must be in English or Amharic version.

The directive says email address may be provided in addition residential address. But can this be
used to serve any kind of notice to those persons who make register of their email. i.e. Would it
be as valid if a person serves any notice via the registered email address? Therefore, the directive
is not clear as the purpose of making register email address. 24

The directive, under its Art. 18 say as the collateral registry office is on duty 24 hours a day and
every day of week. This is good starting for the stakeholders.

It also has provisions which put an obligation on banks with regard to loan allocation and it says
all banks shall allocate at least five percent (5%) of their credit disbursements the year to
individuals, persons in the agricultural sector including cooperatives, unions and others and micro,
small and medium enterprises against movable property as collateral, which shall commence on
July 1, 2020 .25

23
operationalization of movable collateral registry directive No. MCR/01/20, Art.7
24
Ibid, Art. Art 13 (13.3)
25
Ibid, Art 19 (19.1)
Moreover, if a bank failed to achieve the target, in the proceeding budget shall double the allocation
in the subsequent budget year.26

If a bank still fails to comply with sub article 19(4) of this article the national bank shall take
appropriate action in allocating the fund to the stated purpose.

The directive has penalty clause for financial institution failed to comply with the directive and
puts penalty birr 10,000 for each violation.27

To sum up, the directive has some provisions that help for the proper implementation of movable
property security right proclamation.

3.3) Assessment on the Draft guideline on movable properties to be pledged

as collateral for loan
The main objectives of the draft guideline are to identify the main types of moveable properties
which can be pledged as collateral in these areas, to codify and facilitate easy registration of the
assets in the Movable Collateral Registry and to identify the valuation mechanisms.28

The introduction part of the draft guide line says ‘’ Pursuant to Movable Property Security Right
Proclamation No. 1147/2019 (Proclamation), directive No. MCR/01/2020 was issued to fully
operationalize the Movable Collateral Registry’’. Here, what we can understand is the draft guide
line is enacted to operationalize the movable collateral registry.

The lists of the main types of properties includes, agricultural sector (livestock, Crops, Fruits,
Vegetables, Forests/Trees etc and Land Use Right), financial instruments, and intellectual
property. Each types of property have different ways of registration and execution.

It also has four annexes which puts guidance on how to tag and make effective registry so as to
have an effect against third party. The draft guide line entrusted different governmental office with

26
Ibid, Art.19 (19.4)
27
Ibid, Art 20
28
guideline on movable properties to be pledged as collateral for loan draft
different mandates in conducting registration, valuation and execution of movable asset security
right.

3.4) Possible challenges to implement movable asset security law of Ethiopia

When we discuss the improvements made by the newly enacted proclamation, it doesn’t mean that
all going right and doesn’t have any limitations. Accordingly, this paper interested in exploring
some of the limitations of the proclamation:

✓ As disused above, the proclamation doesn’t have any room for paper-based registration. In
connection with this, when we see the technological development of our country and the
level of awareness of our society implementing only electronic registration would be
difficult and somehow practically challenging. This can be supported from the experience
of foreign countries with advanced technology are not dare to employ electronic
registration only rather they use mixed system.
✓ The proclamation imposes a duty on the enforcing secured creditor to notify to any other
secured creditor that registered a security right notification with respect to the collateral
and any other secured creditor that was in possession of the collateral at the time when the
enforcing secured creditor took its possession. Here, it has two shortcomings those are, for
one thing the proclamation doesn’t say anything about the cost of notification. i.e. who is
going to bear the cost of notification? is it on the enforcing secured creditor or on those
persons who are being notified. And secondly, the proclamation is imposing un necessary
extra burden on the secured creditor.
✓ The proclamation has serious terminological blemishes. It employed some jargon words which
are not familiar in civil law countries in general and our country in particular. It seems as if
simply copied directly from other countries law.
 Chapter - 4

4) Conclusion and Recommendation

4.1) conclusion

In Ethiopia, the time for secured transactions law reform has been stretched overdue. The reason
is due to the main body of the Ethiopian secured transactions 1aw incorporated in the Civil Code
and the Commercial Code of 1960, augmented by successive fragmented adjustments through
various laws has been obviously economically inefficient.
As a result, new proclamation was enacted in 2019 to address the limitations of predecessors’ laws.
In addition to this, operationalization of movable collateral registry directive No. MCR/01/20 and
Draft guideline on movable properties to be pledged as collateral for loan are published.

the Proclamation is wide-ranging law designed at governing movable asset security encumbered
as security rights. Subject matters of the security agreement according to this law are inventories,
agricultural products, incorporeal assets, the right to use land unless prohibited by pertinent
laws; a security right under a hire-purchase agreement, security trust deed, trust receipt,
commercial consignment, mortgage of business, sale with ownership reserved, sale with the
right of redemption, security rights in certificated securities, security rights in warehouse
receipt, motor vehicles, trailer, agricultural machinery, construction machinery, industrial
machinery and other properties excluding land, house and building.
The pioneering improvements introduced by the proclamation are related with concept of
collateral registry, Abolition of mandatory dispossession which was a norm in past movable
security agreements will significantly contribute to high level of collateralization, thereby
facilitating right to access to finance. However, it may present new challenges of complicating the
smooth transactions by imposing another difficulty on the part of third parties entering into
transactions on movable properties. They will have to check the encumbrance or otherwise of the
movables by creditors before they decide to purchase or lease. The practical feasibility of having
effective registry system and its negative effect on free flow of goods seems understandable.

Most of the bank’s credit policy doesn’t make accustomed with the newly enacted law on movable
asset security right.
4.2) Recommendation

As mentioned above movable asset security law has different practical and legal challenges that
needs to be improved. Therefore, on the basis of the above conclusions, the writer of this paper
would like to forward the following recommendations:

• Considering the existing status que, the newly enacted law on movable property security
right should be amended in a way it gives a room for paper-based collateral registration
/mixed collateral registration system/.
• Before implementing movable property security right law, the writer recommends to
conduct awareness creation on the society in general and stake holders in particular on
necessity of the laws of movable asset security right and the whole process of
collateralization of movable asset.
• The writer recommends for prompt enactment of guide line for the sake of proper
implementation of movable property security right proclamation and operationalization of
movable collateral registry directive No. MCR/01/20.
 Bibliography

Laws

✓ Civil Code of The Empire of Ethiopia proclamation No.165/1960, Federal Neg. Gaz.19th
Year No.2, 5th May1960
✓ Commercial Code of The Empire of Ethiopia proclamation No.166/1960, Federal Neg.
Gaz.19th Year No.3, 5th May1960
✓ Movable property security proclamation No.1147/2019, Federal Neg. Gaz.25th Year
No.76, 7th Aug. 2019

✓ operationalization of movable collateral registry directive No. MCR/01/20

✓ guideline on movable properties to be pledged as collateral for loan draft
✓ Lion international bank credit processing procedure (volume iii) June 2018

Books, Online materials and articles

✓ Gadissa Tesfaye and mebrathom fetewi, Law of sales and security devices teaching
material, (2009)
✓ Danjuma Ahmad, ’Can introduction of collateral registries for movable assets super firms’
access to credit in Nigeria’ (2018) V (Xii) IJRSI
<https://www.researchgate.net/publication/331035282> accessed 22 June 2020
✓ Maria Soledad Martinez Peria,’does introduction movable collateral registries increase
firms access to finance’(2013) all about finance
<https://blogs.worldbank.org/allaboutfinance/does-introduction-movable-collateral-
registries-increase-firms-access-finance>accessed 25June2020
✓ Giuliano Castellano and Marek Dubovec,’ Credit creation: Reconciling legal and
regulatory incentives’ (2018) 81(63) Law and contemporary problems
<https://lcp.law.duke.edu/article/credit-creation-castellano-vol81-iss1/>accessed
23June2020
✓ International finance corporation, ‘secured transaction systems and collateral registries
(2010) <https://www.ifc.org/wps/wcm/connect/d74da177-192e-49bc-a69a-
716cfb95b0c7/SecuredTransactionsSystems.pdf?MOD=AJPERES&CVID=jkCVsiF>acce
ssed 20June2020
✓ World Bank group, ‘Secured transactions collateral registries and movable asset based
financing’ (2019) Federal department of economic affairs, education and research EAER
state secretariat for economic affairs (SECO),
<http://documents1.worldbank.org/curated/pt/193261570112901451/pdf/>accessed
28May2020
✓ Asress Adimi Gikay,’ Examining the Suitability of the Draft Ethiopian Personal Property
Security Rights’ Law to the Local Context’(2018) 2 Hawassa University Journal of Law
<https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3113728 > accessed 24 June 2020
✓ Kirso hailesilassie,’review of the new proclamation to provide for movable property
security right’ (2019) FLS law
office<http://www.flslegalservices.com/2019/12/26>accessed 23June2020