Badrul Ahsan :
The government is set to formulate a law to bring changes in the traditional mortgaging system by allowing movable property as collateral, official sources said.
After enactment of the law, movable property like goods, a document of title, security, instrument, money or any other intangible asset like goodwill will be regarded as collateral.
The move aims to expand lending of financial institutions and spur economic activities across the country.
Bangladesh Bank (BB) has almost completed preparing a draft of the law titled ‘The Secure Transaction Act’ to pave way for evolving such a non-traditional mortgage system.
The central bank is expected to finalise the draft in a month or two and then it will be sent for the Law Ministry’s vent before placing it to the Parliament.
Movable properties are not accepted now in the financial sector as security for loans. Currently, only the immovable properties like houses or flats and land are accepted by banks and financial institutions as collateral.
People familiar with the latest move at the central bank told The New Nation on Wednesday that this would promote economic activities in the country, and reduce the dependence of lending institutions on immovables as security for credit facilities.
A senior official at the Ministry of Finance said, “This initiative is intended mainly to help small and medium entrepreneurs (SME) and those engaged in self-employment who are unable to furnish immovable property as security against credits.”
SMEs, even startups, may be benefited as their access to the formal credits will rise, the official hoped.
However, a high-profile monitoring team will discuss the matter at the Ministry on August 29.
Bankers view that this is a good news for them as it will help expand the volume of credits as the banking system now rolls in excess liquidity.
They also hope this will bring dynamism into the business sector and the economy as well as many will have access to finance based on such property which the banking system has so far ignored as collateral.
However, welcoming the move, Anis A. Khan, Managing Director and CEO of Mutual Trust Bank Ltd. said, “We welcome such initiative as it infuse dynamism into the economy.”
He also sees nothing wrong in it. Many will get loans for further investment in business and it will help widen the base of collateral.
“The higher security, the higher loans,” he said.
Khan, also chairman of the Association of Bankers, Bangladesh (ABB), said many will be even able to get loans against their motorised vehicles.
“It will have spillover impact on the economy. The insurance sector will also get some sort of business.”
Md Nurul Amin, Managing Director and CEO at Meghna Bank, said they had long felt the necessity of such arrangements.
“Such collateral exists in many countries, even in Sri Lanka,” he said citing an example to justify this initiative towards diversifying collateral.
Amin, however, sees some risks of such security, such as the owners of such property may sell those to other parties and thus cause a problem to the lending banks.
“Suppose, a person gave his vehicles as collateral to a bank and he could sell it to other people, and in such cases bank may face problems.”
