CIB to open unit to track movable assets

KATHMANDU:

The Ministry of Finance (MoF) has allowed the Credit Information Bureau (CIB) to set up a separate unit to keep track of various movable assets, like shares and tradable goods, pledged as collateral to obtain loans from banks and financial institutions.

“Yes, the ministry has principally agreed to allow CIB to commence operation of the unit from March 15,” head of the Financial Sector Management Division at the MoF Krishna Prasad Devkota said.

The latest move is expected to help commercial banks in getting information on whether borrowers have pawned the same movable asset as collateral to get credit from various institutions. However, exact details on how the new unit would function are not available as CIB CEO Anil Chandra Adhikari could not be contacted.

Lately, it has been found that many clients are pledging same movable assets as collateral to obtain loans from various banks.

Such a scenario may not create a problem if borrowers are able to repay debts on time. But if they go bankrupt, the law gives preference to the first banking institution to lay claim to those goods, and auction them to recover the debt. This means the second and third lenders may end up losing money as they can only lay claim to whatever has been left from the auction conducted by the first institution.

To regulate the practice of extending loans against security of movable assets, the government had floated the idea of establishing a separate unit following the endorsement of the Secured Transaction Act in 2006.

The Act allows the government to establish a Secured Transactions Registration Office. But until such an office is set up, the Act also allows the government to designate any office to perform all the functions of the office.

Based on this provision, the government, around three years ago, had decided to allow the CIB to execute works of the Secured Transactions Registration Office.

At that time the MoF had also signed an agreement with the CIB and had promised to extend a fund of around $350,000 from the World Bank’s Financial Sector Restructuring Project to set up the office. But after the World Bank terminated the project, the decision to establish the unit has been put on hold.

Currently, CIB is setting the office through funds collected by it over the years. Earlier, CIB CEO Adhikari had told The Himalayan Times that the fund was enough to develop software and build other infrastructure.

Once this infrastructure is built, the unit will keep records of every movable asset pledged as collateral to obtain loans from every bank. Such movable assets include shares and other securities, inventory of goods like machinery parts or processed food products, and even livestock.

Source: THT