COMMERCIAL PW COMPILATION

INTRODUCTION
The Movable Property Security Rights (MPSR) Act came into full operationalization on May 16,
2017. MPSR act aims to facilitate the use of movable property as security for credit facilities,
enhancing access to credit for individuals and entities using movable assets. It plays a crucial
role in expanding financial inclusion and improving credit access by allowing movable assets to
be utilized as collateral.

Before the enactment of the MPSR Act, the Chattels Transfer Act (Cap. 28) which was repealed
in its entirety by the MPSR Act. It previously governed the assignment of movable property as
security for loans and the Pawn Brokers Act (Cap. 529) which was also repealed by the MPSR
Act. It regulated the business of pawnbroking, which involves taking movable property as
security for a loan. The repealed Acts had fallen victim to the doctrine of lag. This doctrine
dictates that more often than not the law lags behind society and it must attempt to catch up so as
to provide for modern day scenarios that were not envisioned by the previous law.

The Act also amends certain sections of the following Acts:

1. Agricultural Finance Corporation Act (Cap. 323)

The MPSR Act Amends Section 3 of the Agricultural Finance Corporation Act by inserting a
new subsection (3) that provides for the registration of security rights in movable property.
The new subsection provides that the registration of a security right in any movable asset is
effective against third parties if a notice with respect to the security right is registered with
the Registrar.

2. Stamp Duty Act (Cap. 480)

The MPSR Act Amends Section 3 of the Stamp Duty Act by inserting a new subsection (3)
that exempts from stamp duty any notice or other document required to be registered under
the MPSR Act.

3. Hire Purchase Act (Cap. 507)

 The MPSR Act Amends Section 2 of the Hire Purchase Act by inserting a new subsection (4)
that provides that the provisions of the MPSR Act shall apply to hire-purchase agreements.

4. Business Registration Services Act (Act No. 15 of 2015)

The MPSR Act Amends Section 102 of the Business Registration Services Act by inserting a
new subsection (3) that provides that the Registrar of Companies shall be responsible for the
registration of security rights in movable property.

5. Companies Act, 2015

The MPSR Act Amends Section 357 of the Companies Act by inserting a new subsection (3)
that provides that the provisions of the MPSR Act shall apply to security rights created by
companies.

6. Insolvency Act, 2015

The MPSR Act Amends Section 322 of the Insolvency Act by inserting a new subsection (3)
that provides that the provisions of the MPSR Act shall apply to security rights created by
insolvent debtors.

To address the limitations of the Acts above and promote a more accessible credit environment,
the government introduced the Movable Property Security Rights Bill in 2015. The Bill
underwent several revisions and stakeholder consultations before being passed by Parliament and
assented to law by then President Uhuru Kenyatta in May 2017.

Under Section 3 of the MPSR Act it outlines the following objectives:

1. Promote consistency and certainty in secured financing relating to movable assets;

2. Enhance the ability of individuals and entities to access credit using movable assets; and
3. To establish the office of the Registrar and a Registry to facilitate the registration of
security rights in movable assets.

The MPSR Act offers significant Provisions of which include:

Part I - Preliminary: This part outlines the short title, commencement, interpretation, objects,
scope of application, and party autonomy and standard of conduct of the Act.
Part II - Creation of a Security Right: This part outlines the creation of a security right,
including the execution of a security agreement, obligations that may be secured, description of
collateral, right to proceeds, tangible assets commingled in a mass or product, contractual
limitations on the creation of a security right, personal or property rights securing or supporting
payment or other performance, tangible assets covered by negotiable documents, and tangible
assets with respect to which intellectual property is used.

Part III - Third-Party Effectiveness of a Security Right: This part outlines the methods for
achieving third-party effectiveness of a security right, proceeds, transfer of a security right, and
negotiable documents and tangible assets covered by negotiable documents.

Part IV - Registration of Notices Relating to Security Rights: This part establishes the
Collateral Registry, outlines the integrity of information in the Registry, removal of information
from the Registry and archival, limitation of liability of the Registrar, registry fees, grantor's
authorization for registration, one notice sufficient for security rights under multiple security
agreements, procedure for registration of notice, information required in an initial notice,
language of information in a notice, time of effectiveness of the registration of a notice, period of
effectiveness of the registration of a notice, obligation to send a copy of a registered notice, right
to register an amendment or cancellation notice, compulsory registration of an amendment or
cancellation notice, search criteria and results, errors in required information by the registrant
entered in a notice, post-registration change of grantor identifier, and post-registration transfer of
the collateral.

Part V - Priorities: This part outlines competing security rights created by the same grantor,
competing security rights created by different grantors, irrelevance of knowledge of the existence
of a security right, future advances and future collateral, priority of a security right in proceeds,
priority of security rights in tangible assets commingled in a mass or product, priority of security
rights in attachments to immovable property, rights of buyers or other transferees, lessees or
licensees of collateral, rights of non-consensual creditors, non-acquisition security rights
competing with acquisition security rights, competing acquisition of security rights, acquisition
security rights in proceeds, acquisition security rights in tangible assets commingled in a mass or
product, subordination, negotiable instruments, rights to payment of funds credited to a deposit
account, money, securities, and rights acquired in collateral.
Part VI - Rights and Obligations of the Parties and Third-Party Obligors: This part outlines
the obligations of a person in possession to exercise reasonable care, obligation of a secured
creditor to return the collateral or to register an amendment or cancellation notice, right to
inspect the collateral, protection of the debtor of the receivable, notification of a security right
and payment of a receivable, defences and rights of set-off of the debtor of the receivable,
modification of the original contract, recovery of payments made by the debtor of the receivable,
rights as against the depositary bank, and rights and obligations of the parties and third-party
obligees in the event of insolvency.

Part VII - Enforcement of a Security Right: This part outlines post-default rights, methods of
exercising post-default rights, relief for non-compliance, grantor's action for money secured by
an agreement, right of redemption, right of the higher-ranking secured creditor to take over
enforcement, right of the secured creditor to possession of the collateral, right of the secured
creditor to dispose of the collateral, notice of disposition, right of the secured creditor to
distribute the proceeds of a disposition of the collateral, acquisition of collateral in total or partial
satisfaction of the secured obligation, and rights acquired in collateral.

Part VIII - Applicable Law: This part outlines the law applicable to the mutual rights and
obligations, law applicable to a security right in a tangible asset, law applicable to a security right
in an intangible asset, law applicable to the enforcement of a security right, law applicable to a
security right in proceeds of the collateral, meaning of location of the grantor, relevant time for
determining location, law applicable to the relationship of third parties and secured creditors.

Chapter XI: Transitional or General Provisions

This chapter outlines the transitional Provisions for the Act, including the repeal of the Chattels
Transfer Act and the Pawnbrokers Act, and the amendment of other laws.
How the MPSR aims to improve access
to credit for SMEs in Kenya
The goal of Kenya's Small, and Medium-sized Enterprises (SMEs) Policy and MPSR Act is to
solve the difficulties SMEs have in obtaining loans. This is the way it seeks to enhance this
access:

1. It has been key in promoting financial inclusion. This has been achieved though
widening the scope of assets that can be used as collateral as well as widening the
scope of possible secured lenders to include informal lenders.
 Reducing Collateral Barriers; SMEs that lack traditional collateral, such as land or
real estate, can now leverage movable assets or intellectual property rights to secure
loans.
 Enhancing Credit Availability; including informal lenders in the credit ecosystem
increases the availability of credit options for SMEs.

2. Financial institutions are presented with a unique opportunity to innovate and create new
financial products tailored specifically for small and medium-sized enterprises (SMEs). For
example, they can offer working capital loans with flexible repayment terms to align with the
cash flow cycles of SMEs. Similarly, they can create asset-based financing solutions that allow
SMEs to leverage their movable assets as collateral.

3. The introduction of alternative debt recovery mechanisms under the SMEs Policy and
MPSR Act in Kenya other than through the court system, marks a significant shift in how debts
are recovered, aiming to reduce costs and streamline the enforcement process.

4. Exemption from Stamp Duty has significantly reduced transactional costs.

5. Access to the Registry has provided a reliable method for confirming ownership of
secured collateral.

6. Lenders can quickly and efficiently conduct credit analysis due to their convenient access
to the registry.
Specific measures/mechanisms
introduced by the Act to facilitate credit
accessibility for SMEs.
As argued, the MPSR act changed some characteristics facilitate the use of movable property as
collateral for credit facilities.

It is contended that facilitating access to finance for small and medium-sized enterprises (SMEs)
can yield significant benefits, particularly considering the challenges these businesses often face
in obtaining funding through traditional financial channels.

Traditionally, lenders have heavily depended on immovable collateral, primarily land, which has
constrained access to credit to those who own such assets.

The enactment of this Act in 2017 repealed existing laws such as the Chattels Transfer Act and
the Pawn Brokers Act amalgamating some of their provisions and amending additional statutes
including the Agricultural Finance Corporation Act, the Stamp Duty Act , the Hire Purchase Act ,
the Business Registration Services Act , the Companies Act and the Insolvency Act, 2015.

Section 3 of the Act encapsulates its goals, aiming to ensure uniformity and predictability in
secured financing concerning movable assets, improve the capacity of individuals and entities to
obtain credit using movable assets, and institute the office of Registrar and the Registry to
streamline the registration of security rights in movable assets.

IN REGARDS TO MOTOR VEHICLES.

Under Section 2 of the Act, among the tangible assets motor vehicles are highlighted. Such a
movable asset can therefore be used as a collateral. The collateral registry in which securities
secured over movable assets are registered was hence established with the enactment of the Act.
Therefore, in regards to joint registration and searches by lenders, any financial institution
providing a loan to someone using a vehicle as collateral can check the collateral registry to
make sure there are no existing claims on the vehicle. It's crucial to register their interest
promptly to secure their position as a creditor.

This was previously stifled because financiers were jointly listed as owners on the NTSA TIMS
portal. The search would reveal whether there are other co-owners of the vehicle such as a bank,
a micro-finance institution or other creditor such as a motor vehicle dealer.

IN REGARDS TO INTELLECTUAL PROPERTY

The Act institutionalizes and formalizes intellectual property rights as security rights that can be
registered as collateral.

It defines Intellectual Property (IP) to include copyright, industrial property rights, trademarks,
and related rights as specified in respective acts. However, most of these laws don't address IP
securitization.

The initiative is to ensure that there is a significant and effective implementation of measures to
facilitate access to IP securitization within Kenya.

According to the Movable Property Act, intellectual property is classified as a type of collateral.
As per Section 2 of the Act, an acquisition security right refers to a right in a tangible asset or
intellectual property that serves as security for the payment of any outstanding amount of the
asset's purchase price or other credit extended to facilitate its acquisition by the grantor.

By widening the scope for intangible assets to include among other things like deposit accounts,
receivables are electronic securities and intellectual property rights the Business Registration
Service (BRS), a State corporation overseen by the Office of the Attorney General has been
instituted by the Act.

BRS manages the registration process within the respective registries. The Security Right
Registry, which operates fully electronically on the e-citizen platform, allows public access to its
search function. Lenders benefit from easy search capabilities, initial notice registration, and the
ability to modify or withdraw security rights notices. This streamlined access to registries
facilitates registration processes and enhances security for lenders by serving as public notice to
other interested parties. Registering notices with the BRS is crucial as it validates security
interests publicly, offering greater rights to secured parties in cases of bankruptcy compared to
unperfected security interests.

While the enactment of the MPSR can be hailed as marking a new dawn by enabling the use of
movable assets to secure financing, it goes without saying more can been done in regards to the
direction of enabling the facilitation of credit services accessibility for SMEs.

IMPACT OF MPSR ON SMES IN KENYA

The Moveable Property Security rights Act (referred to as ‘the Act’) has brought about
tremendous change since its conception. Many Small and Medium Enterprises (SMEs) have
tapped into the advantages brought about. Significant changes are evident such as the
introduction of the Collateral Registry regulated by the Act, enables financial institutions to
produce product facilities geared towards:
i. Growth of the institution
ii. Giving SMEs a hedge against risk
iii. Availing opportunity for SMEs to compete with one another in particular
industries
iv. Growth of the customer base
v. Increase of confidence by secured creditors. There is a system where secured
creditors can check to see if they are secured.
STATISTICAL IMPACT OF THE MPSR
Registration v Searches
Research recorded in the Handbook depicts a sharp increase in the number of registrations of
notices, since the time of coming into force of the Act 2017 as compared to the number of
recorded searches. In November 2017, 357,817 notices of security rights were registered under
the digital registry compared to 44,862 searches recorded and a ration of 9:1 of the recorded
searches monthly occurring.1

POSITIVE IMPACT OF MPSR ON SMES

1
MPSR Handbook: A Handbook on Moveable Property Security Rights Act (2020-Business Registration Service)
page 36.
 i. There has been widening of the scope of collaterals as well as lenders. This is
brought about by the expansion of items that can be used as collateral such as
household items. Additionally, there has been expansion to cater for informal lenders.
ii. A uniform system of registration of security rights was created. The former
regime had numerous requirements regarding gathering of paperwork and was riddled
with multiplicity of laws.
iii. Improvement in access to the registry’s services has proven to be a plus for
lenders. This enables access to certain information that enables credit analysis to be
conducted efficiently.
iv. The introduction of alternatives to recouping debts other than through litigation.
Litigation has often been deemed strenuous, tedious, costly and time consuming. The
MPSR Act has brought about approaches other than litigation such as Alternative
Dispute Resolution (ADR) Mechanisms to aid in lowering costs and saving time in
resolution of commercial disputes.
v. The Act recognizes both tangible and intangible assets as forms of collateral. The
previous regime only recognized collateral in the form of property, however, the Act
ushers in a new era where intellectual property as well as receivables can be used to
acquire security rights.
vi. There has been a concrete way that parties can be able to ascertain owners of the
collaterals in used. Creditors can verify the authenticity of the assets offered as security.
vii. Certain costs have been reduced. For instance, exclusion from Stamp Duty
payment reduces charges of the transactions unlike the costly preceding regime.
viii. Streamlining of registration procedures. This reduced the crowding at the
collateral registry, as the Business Registration Services (BRS) are now accessible
remotely.

CHALLENGES BROUGHT ABOUT BY MPSR ON SMES

i. Fraudulent sale of collateral. Moveable assets secured as collateral can be sold to
unsuspecting members of the public. This, in turn, can lead to losses accrued to either
or both the bona fide purchasers of value and the lenders.
 ii. Security rights may be affected to the detriment where proceeds are involved.
This is because proceeds of sale may easily become unidentifiable leading to
difficulties in tracing.
iii. Financial institutions may face competition from their counterparts offering
unsecured loans digitally. This has reduced the customer base of these institutions
offering loans with moveable collateral.
iv. There are instances where double registration of security occurs. For instance, the
government requires that for securing debentures, registration occurs at the
Companies Registries and registration of the security right at the National Transport
Services.
v. Chaos where different creditors have registered competing security rights over the
same collateral. If the grantor of the loan facility is unable to pay the amount secured
and interest, a situation of havoc can arise as to how the assets will be divided.
vi. The secured creditors may face high cost of searches and additional fees for
further searches at National Transport and Safety Authority (NTSA). This in turn
leads to the creditors resorting to manual registration of notices as opposed to the
conduct of searches.
vii. Enforcement problems in Intellectual Property being used as collateral. This is
because the laws governing intellectual property do not cater for charges secured with
the former as collateral.

MOVEABLE PROPERTY RIGHTS IN NIGERIA

In many jurisdictions, such as Kenya’s, the traditional method of financing preferred

real property as collateral over a loan. This was the case in Nigeria as well. This is
partially because lands and land transactions are highly regulated, and it is easy to
ascertain ownership through the registries that keep records of all transactions, interests
and encumbrances on the land. This way, it was very easy to ascertain the ownership of
the land at any point and ascertain any encumbrance on the land. However, it became
apparent that many small businesses had no access to capital as they lacked land. It is
this difficulty that the Secured Transactions in Moveable Assets Act, 2017 (herein
referred to as “STMA” or the Act) was enacted to ameliorate.

Secured Transactions in Moveable Assets Act

The Movable Properties Act was passed into law in Nigeria as a result of several
problems, including outdated, disjointed laws that made it difficult to obtain credit at
reasonable rates, no system for registering ownership, and no credit reporting system
that resulted in exorbitant interest rates and ambiguous rights to repossession. These
obstacles made it challenging for SMEs to effectively get finance. Thus, the Act was
passed with the goal of enhancing financial inclusion and granting micro, small, and
medium-sized businesses access to reasonably priced debt financing. In addition, the
legislation was passed to regulate the establishment, development, and realization of
security interests in moveable property.

The Preamble of the Act states that the Act provides for Secured Transactions,
Registration and Regulation of Security interests in Movable assets. Prior to this, the
security interest in moveable assets was regulated by the Central Bank of Nigeria's
(CBN) Registration of Security Interests in Movable Property by Banks and Other
Financial Institutions in Nigeria Regulation 1 of 2015.

Section 2(1) of the Act provides that the Act applies to all security interests in movable
assets created by an agreement that secures the repayment of money or the performance
of an obligation and applies to all financing and operating leases entered into after its
coming into effect. However, as per section 2(2), the Act does not apply to the right of
setoff, interest in land (other than account receivables) or ships and aircraft since there
are already established registries or governing law for same.

Creation of a Security Interest

Like in many jurisdictions, a security interest is created by a Security Agreement. The

Act in section 3(1) acknowledges that a security interest is created by a security
agreement between a creditor and a grantor. The form of the security agreement is
captured in section 5 of the Act which provides that a security agreement shall capture
the intention of the grantor and the creditor to create a security right, identify the
creditor and the grantor, describe the secured obligation, describe the collateral
adequately, indicate the tenor of the obligations and that the agreement should first be
subjected to arbitration before going to courts. Section 6(1) requires that assets that form
the collateral must be adequately described, leaving no room for ambiguity. Lastly,
section 8 (1) provides that perfection of securities occurs when a financing statement
with respect to the security right is registered in the Collateral Registry. The security
interest thereby created will extend to the traceable proceeds of the secured assets, even
though the security agreement does not refer to the proceeds.

The Collateral Registry.

The Collateral Registry is supervised and administered by a Registrar appointed by the

Governor of the Central Bank of Nigeria, which was created in accordance with Section
11 of the Act. Its duties include gathering, recording, and preserving data about security
interests in moveable assets as well as granting access to it. With respect to the timing
and obligation of registration, the Act provides that a financing statement may be
registered by or on behalf of a creditor at any time. This suggests that the collateral may
be registered at any time.

In order to prevent secret liens and give registered interests precedence, Section 23(1)
specifies that the priority of completed security interests is determined by the order of
registration rather than creation. As stated in Section 39(1), the enforcement of security
interests includes judicial remedies and techniques such as seizure, sale, appointment of
a receiver, foreclosure, or court action, which are vital for creditor recovery in
circumstances of debtor default or insolvency as provided under Section 39(5) of the Act
and further methods allowed by the Companies and Allied Matters Act.

Realization of security interest.

With respect to the enforcement or realisation of a registered security interest, Section

39(1) provides that in the case of default, a secured creditor may, inter alia, (a) exercise
all its rights under the Act and in the security agreement; or (b) resort to any
appropriate judicial remedy. The Bills of Sale Law, on the other hand, does not provide
for an adequate enforcement regime. According to section 39(5) of the Act, the remedies
provided in the Act are expressly stipulated to be in addition to any other remedy
provided in the Companies and Allied Matters Act. However, where a creditor has
suffered a default and intends to enforce its security, section 40 dictates that the creditor
must provide the borrower and the grantor with a notice of default and, thereafter,
must wait 10 (ten) days before exercising its right to enter into possession of the
collateral.

Comparative analysis of the two regimes

With the adoption of the Secured Transactions in moveable Property Act of 2017 in
Nigeria and the Movable Property in Security Rights Act of 2017 in Kenya, respectively,
both countries have acknowledged the necessity for legislation regulating moveable
personal property to promote SMEs. In the event of borrower default, these acts
safeguard creditors and give SMEs access to alternative lending options that allow them
to recoup their investment. By establishing procedures and norms for the creation,
perfection, and discharge of security interests, together with steps to handle payment
failures, these laws protect the interests of lenders and borrowers at every stage of the
transaction lifecycle.

Notwithstanding these parallels, the two regimes differ noticeably from one another. A
provision that is lacking from the Kenyan MPSR Act requires parties to resolve civil
issues via arbitration first. This arbitration clause is found in Section 5 of the Nigerian
STMA. Furthermore, the Nigerian Act permits the use of ships, airplanes, and other
watercraft as security in security agreements; in contrast, the Kenyan MPSR Act does
not include them as they fall under the purview of that act since they are subject to
separate Kenyan laws. These distinctions draw attention to the two nations' different
methods to addressing disputes and the kinds of moveable assets that qualify for
security interests.
Educating SMEs and financial institutions about their respective legislation presents
comparable issues for Kenya and Nigeria. Additional concerns that are shared by both
nations include the implementation and efficacy of the collateral registries. The Act's
advantages may be lessened in Nigeria, nevertheless, because of the country's more
difficult judicial system and costly interest rates. Nevertheless, the MPSR Act's
applicability is restricted by Kenya's exclusion of some transportable assets, such as
ships and airplanes. Both countries have sluggish legal proceedings and dubious
dispute settlement procedures, which contribute to a high incidence of enforcement
problems. SMEs in both nations have made great progress in obtaining finance through
moveable property; nonetheless, in order to fully utilize the potential of the legal
framework.