By Haimanot Ashenafi
Assuming it is ratified by the House of People’s Representatives, patent rights could soon be used as collateral for bank loans. A draft proclamation named “Movable Property Security Rights” is proposing this become a reality. This would include patents and products that come from them. It can include patients for physical products or ideas such as would fall under intellectual property law.
The proclamation is part of the financial inclusion strategy (NFIS), launched in 2017 with the support of the World Bank, to increase the percentage of adults with a transaction account from 22% in 2014 to 60% in 2020.
The International Finance Corporation (IFC) financed the proclamation drafting process which is based on United Nations Commission on International Trade Law (UNCITRAL).
The working group used Malawi and Zambia as examples. It was made up of the National Bank of Ethiopia (NBE), lawyers and stakeholders in the financial sector.
“There are many people who want to use the potential in their movable assets as collateral so that was the imputes for this proclamation,” according to the explanatory note sent to Parliament. The bill was approved by the Council of Ministers two weeks ago. Currently immovable property and business institutions are used as collateral for loans. Ethiopia has 23.5 percent of its population living under the poverty line and the financial sector has been criticized for leaving out people living in the rural part of country, especially farmers.
The draft brought good news to Fintech and startups because it removes an obstacle to finding finance. The draft is an indication that the economy is opening up and it is becoming easier for consumers to access loans using all types of assets, according to Michael Takie, co-founder of AXIOM Financial Technologies.
AXIOM is developing software to help microfinance organizations and cooperatives provide loans online using algorithms. It uses data to create a credit score looking at many aspects of people’s spending habits and assets such as farm size, amount of fertilizer used, product sales, salary, and mobile top-up history.
“The arrival of this law is extraordinary for us. It will widen the base of loans for farmers, SMEs and startups. It will make it easier for them to access credit,” said Michael who added that valuable intellectual properties are prime collateral for accessing finance.
Michael thinks this will encourage new ideas and innovation because it will be easier for startups to access funding. He added that multi-million-dollar software purchased by banks was not utilized to the extent that it could have been. Microfinances and cooperatives don’t have the budget to purchase the software. Fintech will likely take advantage of proclamations like this one, he added.
The proclamation has 96 articles and eight chapters. It would establish a Collateral Registry Office which would be accountable to the Council of Ministers. NBE will establish the office for now and will appoint the registrar. The collateral registry is an office to manage the electronic system for receiving, storing and making accessible to the public, information about security rights and non-consensual rights in movable property.
The draft bill also recognizes agricultural products, the right to use land, security rights in certified securities, security rights in warehouse receipts, inventories and more.
When NBE was informed about the bill, their staff raised concerns about security. They wanted to know if there was a proper registration system. They also wanted to know what types of security rights the law would cover.
Yinager Dessie (Ph.D.), governor of the National Bank told the press that there have been legal reforms affecting the economy. Ten directives have been amended to relax business activity in the financial sector and four proclamations have also been drafted, including the latest one. The Chief at the Central Bank also revealed that the bank is preparing to allow a scheme which will allow loans without collateral. The issue has been a problem for startups with creative business models and innovative ideas that failed to fulfill the high-security standards set by the banks.
Unless otherwise is provided by the insolvency law, the priority of the secured creditor shall continue during insolvency or liquidation, according to the draft. This sub-article will solve the problem which occurred previously, when banks had difficulty recovering their investment in cases of bankruptcy.(Capitalethiopia)