Introduction

For years, shylocks and microfinance institutions (MFIs) in Kenya have played a crucial role in providing credit to individuals and businesses that lack access to mainstream financial institutions. However, their lending practices have often been constrained by cumbersome collateral requirements, legal uncertainties, and the risk of default.

The introduction of the Movable Property Security Rights Act, 2017 (MPSR Act) has significantly transformed the lending landscape, making it easier for small lenders to secure their interests in movable assets without the burden of court processes. This article explores how the MPSR framework benefits shylocks and MFIs, comparing it with the pre-existing regulations and highlighting its key advantages.

Understanding the Movable Property Security Rights Act, 2017

The MPSR Act was enacted to create a clear legal framework for using movable assets as collateral. Before its enactment, lenders faced challenges in securing their loans, especially in cases where borrowers defaulted. The traditional laws did not provide an efficient system for recognizing, registering, and enforcing security interests in movable property.

Under the MPSR framework, lenders can now register their security interests in a centralized registry, which provides legal recognition of their rights and simplifies the process of recovering debts in case of default.

How the MPSR Act Benefits Shylocks and Microfinance Institutions

1. Expanding the Scope of Acceptable Collateral

Traditionally, most lenders, including banks, required immovable property such as land or buildings as collateral. However, many small borrowers, particularly those seeking loans from shylocks and MFIs, do not own such assets.

The MPSR Act allows lenders to take security over a wide range of movable assets, including:

Motor vehicles

Stock-in-trade

Household goods

Livestock

Intellectual property (such as patents and copyrights)

Accounts receivable

This expansion of acceptable collateral enables shylocks and MFIs to lend more confidently, even to individuals who lack land titles or real estate holdings.

2. Centralized Online Registration System

The Movable Property Security Rights Registry provides an online system where lenders can register their security interests. This registration serves as public notice that a specific movable asset is encumbered, reducing the risk of fraud and double pledging of assets.

For shylocks and MFIs, this means they can easily verify whether an asset has been used as collateral for another loan before accepting it as security. This transparency was previously lacking, making it difficult for lenders to assess the risk of lending against movable property.

3. No Need to Go to Court for Debt Recovery

One of the most significant advantages of the MPSR framework is that it eliminates the need for expensive and time-consuming court processes when enforcing security interests.

Previously, if a borrower defaulted on a loan secured by movable property, the lender often had to seek court intervention to repossess or sell the asset. This was particularly difficult for shylocks and MFIs, who lacked the resources for prolonged legal battles.

Under the MPSR Act, lenders can enforce their security interests without going to court by:

Seizing and selling the collateral after notifying the borrower

Appointing a receiver to take control of the asset

Retaining the collateral in satisfaction of the debt

These provisions ensure that lenders can recover their money more efficiently, reducing losses associated with loan defaults.

4. Better Legal Protection for Lenders

Before the MPSR Act, shylocks and MFIs operated in a largely informal manner, exposing them to legal risks. Many borrowers would dispute loan agreements, claiming unfair lending terms or denying the existence of a loan altogether.

With the MPSR framework, a registered security interest provides legal proof of the lender’s claim over the collateral. This protects lenders from fraudulent borrowers who might attempt to dispose of the asset or claim that they never took the loan.

5. Higher Loan Recovery Rates

By reducing legal uncertainties and simplifying enforcement procedures, the MPSR Act increases the likelihood of recovering loans. When borrowers know that lenders can quickly seize and sell collateral without court intervention, they are more likely to honor their loan obligations.

Additionally, lenders can now conduct better risk assessments using the movable assets registry, ensuring that they only accept collateral that is free of existing encumbrances.

6. Lower Lending Costs and Improved Profitability

For many shylocks and MFIs, legal fees and court-related costs were a significant burden. The MPSR Act reduces these expenses, allowing lenders to operate more efficiently.

By streamlining the lending process, reducing default risks, and improving loan recovery rates, the new framework enhances profitability for lenders while ensuring fairer lending practices.

Comparison with Pre-existing Regulations

Before the enactment of the MPSR Act, lenders relied on outdated legal frameworks such as the Chattels Transfer Act and common law principles. These regulations had several limitations:

The MPSR Act has effectively modernized the process, making lending against movable assets safer, faster, and more cost-effective.

Conclusion

The Movable Property Security Rights Act, 2017 is a game-changer for shylocks and microfinance institutions in Kenya. By expanding the scope of acceptable collateral, introducing a centralized registration system, and eliminating the need for court intervention, the Act provides a more efficient and legally secure lending framework.

For lenders, this means higher loan recovery rates, reduced legal costs, and greater confidence in issuing credit to small borrowers. By leveraging the benefits of the MPSR Act, shylocks and MFIs can expand their businesses while mitigating risks, ultimately contributing to increased financial inclusion in Kenya.

Shylocks and microfinance institutions should actively embrace the MPSR system by registering their security interests and familiarizing themselves with the enforcement procedures. By doing so, they will not only protect their investments but also enhance their competitiveness in the evolving financial landscape.

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Disclaimer: This is not legal advice and should not be relied upon as such.

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