The Tribune

The Central Bank yesterday revealed it is moving forward with plans to enable businesses and individuals to pledge "moveable assets" as security for bank loans and other forms of credit.

The regulator, in a statement, confirmed it has initiated a bidding process to find consultants able to perform "a diagnostic study analysis" that would underpin the creation of a Bahamian "moveable collateral registry".

The creation of such a registry, which is viewed as a complement to the upcoming Credit Bureau, would enable lenders to record and secure their interest over vehicles and other mobile assets that could be pledged as loan collateral.

The driving motivation behind the proposal is thus improving Bahamians' access to credit by enabling potential lenders to properly perfect and secure collateral - something they often struggled to do with such assets in the past.

"The Central Bank of The Bahamas invites proposals from qualified firms or individuals to perform a diagnostic study analysis that guides the establishment of a moveable collateral registry for The Bahamas," the regulator said.

"This input is intended support a second stage project to develop a modernised, secure framework, in which businesses and individuals can pledge movable assets as security towards credit and other commercial transactions."

John Rolle, the Central Bank's governor, told Tribune Business last November that it planned to study the feasibility of creating “a registry to track movable chattel pledged by borrowers”, such as vehicles, in a bid to improve credit access for deserving borrowers.

He confirmed the regulator had been asked to investigate such a registry by the Ministry of Finance as a means to improve the information available to commercial banks and other lenders when assessing the creditworthiness of loan applicants.

“What’s important when we talk about access to credit, so that there are no misconceptions, is the need for more legal reforms in the country so the information system lenders rely on improves,” Mr Rolle said then. “The credit bureau is one of them. The Central Bank has also been asked by the Ministry of Finance to put in place a registry to track movable collateral pledged by borrowers - automobiles and other items used to secure debt.”

He added that such a registry could also be used to “create information and monitor what happens with legal judgments awarded, and claims made against, legal assets. That part of the information system needs to be improved”.

The Central Bank governor said technology advances had potentially enabled the registry's creation so that banks and other lenders will be better able to perfect and oversee loan security/collateral and avoid competing claims to the same asset.

“We are going to study how it could be done,” he explained. “With the infrastructure improvements the possibility came to mind. We’re going to look in detail at what possibilities exist. At some level it may require some legal reforms.”

Bahamian commercial banks and other lenders currently lack complete information on the credit history of many potential borrowers, which makes it impossible to properly assess the risk they pose and price the loan (interest rate) accordingly.

And, as a result, delinquent borrowers are able to bounce from institution to institution, obtaining credit and subsequently defaulting with banks unaware of their previously wretched history with competitors.

A registry of “movable assets” pledged as collateral, together with judgments and liens secured on them, would certainly boost a lender’s ability to properly assess a borrower’s creditworthiness, but it may be difficult to pull together given that information would have to be sought from numerous sources within a court system and public sector that is not digitised.

Now, just over one year later, the Central Bank appears ready to give it a go. Bids for the consultancy must be submitted by Christmas Eve, with the regulator anticipating that the study will begin by March 1, 2021, and take no longer than nine months.

"The bank expects to identify a solution which is a best fit for The Bahamas’ economic environment. Alongside a credit bureau and potential reform to bankruptcy laws, the collateral registry would strengthen the domestic framework for access to credit, particularly for micro, small and medium-sized businesses," the regulator added.

"This project is being launched in close collaboration with the Ministry of Finance. It is expected to enlist close co-operation with existing government agencies with responsibility for maintaining public registries, and with credit originating stakeholders in the financial sector. A level of consultation with other domestic stakeholders is also anticipated."

The Central Bank said the study should be guided by the United Nations Commission on International Trade Law (UNCITRAL) model law on secured transactions, and assess all system aspects that hinder or promote access to credit.

"It should examine all current domestic legislation relevant to the use of movable property as collateral, and identify any class of property that could be impeded from use as collateral under existing laws. Actionable outcomes include comprehensive recommendations on new or amended legislation to achieve the modernised collateral registry framework," it added.