The Tribune

The Central Bank’s governor says business lending and confidence will be boosted by legislation to create a regulatory framework that will enable “mobile assets” to be pledged as credit security.

John Rolle, in messaged replies to Tribune Business questions, said the Transactions in Movable Property Security Bill 2024 and associated legal reforms will enable borrowers to use assets such as accounts receivables, vehicles and intellectual property rights as collateral to obtain credit, advances and loans.

And, in return, lenders would have the confidence to advance and extend such facilities knowing that their rights and interests, and ability to secure such assets in the event of default, are fully protected. This, in turn, would help to expand lending to businesses and entrepreneurs and stimulate greater economic growth.

“The Secured Transactions Bill is one of the important planks in the reform efforts to improve the ease of doing business in The Bahamas,” Mr Rolle told this newspaper. “It would expand the ease and range of access to commercial credit in the economy, making it more secure for both financial institutions and private financiers to lend, backed by assets other than real estate.

“These could be assets like accounts receivables, creative talent, intellectual property or any moveable property to which a monetary value can be attached. The Bahamas would have a digital, searchable public register in which transactions would be recorded.

“It would establish the legally, enforceable priority in which lenders could assert their claim if there is a default by the borrower. Importantly, it would prevent the fraudulent, multiple pledging of the same collateral,” the Governor added.

“The benefit for the country is that it would increase the potential for business lending over the medium-term. Those who have non-real estate assets would have more opportunities to borrow against such assets. Similarly, it would give potential financiers, banks or otherwise, more confidence to lend to a broader cross-section of entrepreneurs.”

The Transactions in Movable Property Security Bill and complementary legal amendments were on the House of Assembly’s agenda to be debated no less than three times’ in recent weeks. However, this has been overtaken by other events and developments within Parliament and has yet to happen.

The Bills calls for the creation of a Collateral Registry, and appointment of a registrar to oversee it. This will be responsible for recording all movable assets that are pledged as loan security, and will be attached to the Registrar General’s Department.

The legislation also calls for accompanying changes to be made to existing laws such as the Companies Act and International Business Companies Act, plus the Money Lending Act and Sale of Goods Act. 

The Central Bank previously released the draft legislation, known then as the Movable Property Security Interest Bill, as far back as 2022 for public consultation and feedback as it sought to transform secured lending in The Bahamas by enabling entrepreneurs, start-ups and micro, small and medium-sized businesses to pledge mobile assets - such as vehicles and equipment - to lenders as security for credit they extend.

So-called “intangible assets” - accounts receivables (factoring) and intellectual property rights - could also be used as loan collateral under the Bill, with the registry securing the rights of both lenders and borrowers by registering liens, mortgages and other charges over such assets.

“We’ll also be communicating back to the Government on the legal framework that’s proposed and will be part of the consultation,” Mr Rolle said in early January 2023. “We should expect this year that the legislation will be finalised and taken through the Government approvals process. We’re going to be intensely focused around the execution of the platform for the collateral registry.

“There’s one aspect of that which will come out in the public consultation. It’s not a difficult issue to resolve, but it’s an important one. What does this registry look like, and who operates it? We know it will be digital and online, but we need to be careful not to build too much super structure to support the collateral registry. There will be some important decisions around how we source operations of the registry.”

Edison Sumner, principal of Sumner Strategic Partners, previously told Tribune Business that the mobile collateral registry was “a tremendous step in the right direction” provided it is accompanied by the necessary training.

While he “fully endorses” the regulator’s plan to transform the laws underpinning secured lending in The Bahamas, it had to educate micro, small and medium-sized businesses (MSMEs) on how they can properly monetise intangible assets such as intellectual property so that they can be employed for loan collateral.

A former Chamber of Commerce chief executive, who sits on the Government-sponsored venture capital fund’s Board, he added that even entities such as the latter - established to give small business better access to capital - require some level of security for any debt financing provided as do guarantors of these advances.

“I think it’s a very good step in advancing the ability of SMEs to access capital, especially for those that might not have had the security that financial institutions are looking for to collateralise loans,” Mr Sumner told this newspaper. “The fact the Central Bank is moving into this new system will be tremendous for SMEs. The direction the Central Bank is moving in, I fully endorse it. It’s a tremendous advance in funding and embracing ways to capitalise on the SME space.”