SECP launches Digital Secured Transactions Registry with support from DFID

LAHORE ( PRESS RELEASE )

Karandaaz Pakistan, with financial support from the UK’s Department for International Development (DFID), is helping the Securities Exchange Commission of Pakistan (SECP) digitalise its key operations. In the first phase of this process, a digital Secured Transactions Registry (STR), governed by The Financial Institutions (Secured Transactions) Act, 2016 has been launched. The STR is an electronic database in which financial institutions can record charges or security interests created by unincorporated entities or individuals on their movable assets. Movable assets include receivables, intellectual property, inventory, agricultural produce, petroleum or minerals, motor vehicles, etc. A digitalized STR will open up new avenues for small and medium enterprises and agriculture sector borrowers to secure credit from financial institutions, while offering greater transparency and visibility around recorded charges or security interests to financial institutions. According to a 2017 report by Haidermota BNR & Co. titled Financial Inclusion and Secured Transactions: Expanding access to credit in Pakistan’s MSME Sector, most SMES in Pakistan are in trade and services (51% and 35%, respectively) and their assets mostly comprise of moveable property, such as inventory and receivables. They have limited immovable property to mortgage which severely impacts their ability to grow and expand.

Aamir Khan, Chairman SECP said, “While the STR will improve access to finance for micro, small and medium businesses, this initiative would help in meeting “Getting Credit” indicator of World bank’s ‘Doing Business Index’ and make Pakistan able to meet 7 out of 12 indicators”. Khan said that SECP has already commenced work for the next year to strive for 100% coverage of this indicator and as a result, Pakistan would be in the forefront of “getting credit” reforms in South Asia. “This improvement, coupled with other changes SECP has been able to drive during the current year, in ‘starting a business’, ‘protection of minority interests’ and ‘resolving insolvency’ indicators shall lift Pakistan’s overall ranking,” he added.

Dr Shamshad Akhtar, Chairperson Karandaaz said, “Pakistan ranks 108th on Ease of Doing Business Index making the country less attractive for foreign direct investment. The absence of a Secured Transaction Registry (STR) was one of the factors that contributed to our lower score on this index. It also compromises the allocative efficiency of capital as a wide class of moveable assets could not be used as collateral.  I am pleased that Karandaaz Pakistan in partnership with SECP has implemented STR through the support of the UK’s Department for International Development.  The STR promises to substantially redress the information asymmetries and legal uncertainties that have hampered the supply of credit to micro, small and medium businesses.   Apart from improving Pakistan’s score on the Index, it will enable the financial eco-system to leverage a useful database for AI-driven credit models helping in unleashing the potential of financial markets for economic development.”

Mr Ali Sarfraz, CEO Karandaaz Pakistan said, “Rural enterprises and SMEs have low access to formal credit in Pakistan. One of the reasons for their low credit penetration is their inability to provide quality collateral which meets their risk profile to the satisfaction of formal creditors. In many cases, SMEs do not even bother applying for loans as they are certain that they will unable to meet the collateral requirements of financial institutions. We know however, that more often than not, these smaller borrowers do own valuable movable assets that can be utilized as collateral. We are confident that the STR will enable unserved enterprises to access formal financing leveraging their moveable assets and have a greater chance to grow and earn better revenues and create more jobs.”

British High Commissioner, Christian Turner said, “Congratulations to Pakistan on rolling out the digital Secured Transaction Registry. This UK supported initiative will help Pakistan’s ranking on the World Bank’s Ease of Doing Business, enhance firms’ access to finance and assist with attracting foreign investment. We recognise the deep impact that Covid-19 has had on the economy of Pakistan. A digitized and efficient functioning registry will greatly help SMEs and companies for accessing funding to resume business operations in the recovery phase. It is at such difficult times that friends must stand together – and there is no better example of international friendship than the deep ties between the UK and Pakistan.”

Preceded by approval of the Financial Institutions (Secured Transactions) Act by Parliament in 2016, the launch and operationalization of the STR will now make it possible for a larger number of businesses to leverage their assets into capital for investment and growth, contributing to the Government’s commitment to expanding credit to at least 700,000 SMEs by 2023, compared to less than 200,000 at present.