KARACHI: The National Assembly adopted a legal amendment to increase the access of small and medium-sized enterprises (SMEs) to loans and secure transactions for financial institutions.

The National Assembly adopted the 2020 Financial Institutions (Secure Transactions) Bill (Amendment) in order to align the legal framework for secure transactions with international best practices and improve the country’s ranking in the index the World Bank’s ease of doing business, according to a document. The bill will now be tabled in the upper house for final approval.

This will provide a legal framework for the creation, perfection and enforcement of security interests on movable property with a view to improving SMEs’ access to finance through the use of their movable property – debts, intellectual property, inventory, instruments. negotiable,

agricultural products, petroleum or minerals, motor vehicles – as collateral for loans.

With about 40 percent of GDP share, SMEs have access to less than 10 percent of private sector credit, according to central bank data. The country ranks 119 on the World Bank’s indicator for ‘getting credit’.

The law also provided for the establishment of a secure transaction register (STR) for recording charges created by legal persons – natural persons, sole proprietorships, partnerships – on their movable property. SECP launched STR last April

The scope of the law has been extended to allow the extension of collateral to future assets, proceeds and replacement of original assets and the absolute assignment of receivables.

It allows a general description of debts and obligations in collateral agreements, allows all types of debts and obligations to be guaranteed between the parties and gives top priority to secured creditors over government and labor claims, in the event of insolvency default or apart from insolvency.

“To ensure effective administration of DOS by the SECP, certain powers of the federal government – appointment of the registrar, operationalization of the

the register and related matters have been entrusted to the SECP, ”the document said.

“This registry structure will help to move forward towards unification of registries and their legal framework in line with business methodology and international best practices, which will further improve the ease of doing business ranking. to come up. “

Additionally, collateral will be regulated on the basis of function, not form, traditional collateral terminology to comply with international best practice on secured transactions laws and World Bank requirements.

By law, the filing of a security agreement is not required and the prior registration of the security interest on the basis of the authorization of the entity is allowed. A charge / security can be recorded for a period of up to 5 years, which can be extended if necessary.

The perfection of security interests can be achieved by registering all types of security interests in movable property. However, in some cases, for example, the possession of tangible personal property or the right to the funds credited to the deposit account can also be obtained by possession or control respectively. Prior perfection by registration was not available for all types of collateral.

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