Govt allows everyone to extend loansIndividuals seeking loans from now onwards will not necessarily have to visit banks and financial institutions, as the government has allowed everyone to extend credit on the back of any movable asset, including cars, mobile phones, wrist watches and even crops and livestock.
Individuals seeking loans from now onwards will not necessarily have to visit banks and financial institutions, as the government has allowed everyone to extend credit on the back of any movable asset, including cars, mobile phones, wrist watches and even crops and livestock.
It is not that loans are currently not being extended by entities other than banking institutions. Even individuals provide credit with the aim of generating profit. But this is illegal, because the Nepal Rastra Bank, the banking sector regulator, bars any person or firm from extending loans, without taking its prior approval. This means only banks and financial institutions, including cooperatives, and other entities authorised by the NRB can issue credit.
But with the Secured Transaction Registry Office commencing its operation, any individual or firm can provide credit on the back of movable assets.
“This initiative will diversify the credit market and prevent risks related to loan defaults, which could even trigger a financial crisis, from being concentrated in the banking sector,” said Anil Chandra Adhikari, CEO of Credit Information Centre Limited, which is overseeing operation of the Secured Transaction Registry Office.
The office, established as per the provision laid in the Secured Transaction Act, began operation on May 15. “Since then we have been creating a database of loans issued by commercial banks against movable assets,” Adhikari said. So far, 26 commercial banks, excluding state-owned Rastriya Banijya Bank and Agricultural Development Bank Limited, have registered assets worth Rs10.5 billion.
“Most of these loans were issued against inventories of fast moving consumer goods and garments, among others,” Adhikari said. “We would now like to encourage individuals and private companies to register movable assets based on which loans have been issued.”
To complete the registration process, one can visit the website of the Secured Transaction Registry Office and enrol movable assets against which loans have been or are about to be issued. The registration process can be completed by paying a fee of Rs 500, which will be valid for five years.
The registration of movable assets will prevent borrowers from pledging the same good to acquire loan from other lenders, as lenders can check the office’s website to confirm whether the same collateral has been used to acquire credit.
This, however, does not mean borrowers will be barred from using the same collateral to obtain loans from different lenders. In such a case, lender that had first issued the credit will get priority to lay claim to the collateral and auction it to recover the debt.
To further prevent disputes, the lender and borrower should sign an agreement, clearly mentioning intervals at which loan instalments have to be paid, the payback period, and the party responsible for bearing certain expenses, like insurance cost, and taxes or fees associated with the collateral.
In this manner, any movable asset, including food items, personal belongings, livestock and agricultural products, or intangible property, like innovative ideas, can be used as collateral to obtain loan from any individual or firm based on mutual understanding.
If any problem crops up during this process, legal recourse can be taken.
As per Secured Transaction Act, anyone who commits offence will be fined Rs 50,000 to Rs 500,000 or imprisoned for up to six months, or both. Also, a person who suffers losses can file a court case and plead for compensation.