As the economy gradually recovers from the pandemic plunge, there is an urgent need for credit by many SMEs to fuel their operations if they are to remain afloat. Initially, SMEs would be required to avail fixed assets or a limited selection of movable ones as collateral if they were to secure credit from creditors, criteria that was leaving a huge percentage of them financially unserved or underserved. Well, not anymore!
The Security Interest in Movable Property Act (SIMPA) which came into force on 31st May 2019 allows SMEs and individuals to secure credit using their movable and immovable assets as collateral. These assets can vary from motor vehicles, livestock, machinery, electronics, furniture and inventory to intellectual property, accounts receivable, deposit accounts and electronic securities.
Purpose of the Act.
- ● The Act facilitates the creation and perfection of security interests by the creditors.
- ● Provides the rules for determining the priority of claims among competing claimants.
- ● Provides a register for the registrations of security interest in assets by registration of notices by the creditor.
- ● Regulates the enforcement of security interests and search of the register for related matters.
How it works.
- ● A loan agreement is signed between the creditor and the borrower (asset grantor) and the borrower agrees to avail title of the asset(s) to be used as collateral for the loan amount.
- ● The creditor then does a search on the availed collateral title via Uganda Registration Services Bureau’s (URSB) online portal; Security Interest in Movable Property Registry System (SIMPRS) to prove the asset’s authenticity and ensure that his (the creditor) interest is first priority.
- ● The creditor then registers his security interest in the asset granted by the borrower by registering sequential notices for the period the loan will run.
- ● The security interest registered is for the sole purpose of creating a security interest and not operate as a transfer of interest of property from the grantor.
- ● The secured creditor also takes on the duty and responsibility to preserve the collateral asset with reasonable care and shall release the asset to the borrower on mutually agreed terms.
- ● Once the loan has been fully paid off, the lender files a discharge notice for the discharge of his security interest in the asset, then releases the collateral in his possession.
Without doubt, the SIMP Act is revolutionising the financial industry by creating an inclusive environment where people can use almost all sorts of assets to get credit.
The bigger question is how aware is the populace about this law, and what techniques have the lawmakers put in place to ensure that it’s enforced to have Uganda’s economy spiral?
Disclaimer: The information contained in this article is for general guidance and not a substitute for the need to get professional advice. For further information about the Act, feel free to read and understand it in depth from www.parliament.go.ug.