MSME boss encourages small businesses to use collateral registry

HEAD of the Micro, Small and Medium-Sized Enterprise (MSME) Alliance Donovan Wignall believes greater use of the National Security Interests in Personal Property (NSIPP) Registry could put small businesses in better stead with financial institutions when seeking loans.

Financial institutions tend to shy away from offering loans to small businesses because of the high level of informality in the sector and the associated risks.

But Wignall believes this reluctance could change if more financial institutions, as well as small businesses, use the registry which was established to facilitate greater access to financing, particularly for the micro business sector.

“It’s been used, but wider use of that particular feature is needed on the financial landscape, and I think some more has to be said publicly about it and the usage of it and more information on its existence and its purpose,” he said, while lamenting that Jamaica National is the only bank currently using the facility.

Nine years after its establishment, there has been low usage of the facility, partly because people seeking loans or offering them have no knowledge of it. This was disclosed by business development officer at the Jamaica Association for Micro-Financing (JAMFIN), Simone McVoitte at last Thursday’s meeting of the joint select committee reviewing the Security Interest In Personal Property (SIPPA) Act, 2013, under which the electronic registry was birthed. The information emerged from a survey among JAMFIN’s membership which consists of a mix of companies in the microfinancing business.

According to the SIPP Registry’s website, clients may register, amend, continue and terminate security interests created on movable property (collateral) of debtors by filing notices as per the NSIPP Registry and thereby inform others that you have taken a security interest (a pledge or a charge) in someone’s (the debtor) movable property to secure their obligation to you (usually an obligation to repay money).

Moveable property is any property that can be moved from one location to another. For example, a motor vehicle, jewellery, art, writings, or household goods, for example, a refrigerator.

“The original concept [for the registry] was to allow loans to be guaranteed by a personal property and there was a challenge at the time because personal or movable property was not being used by the banks and some financial institutions as collateral. With the introduction of this particular registry, there is a formal space that the financial institutions can refer to if you want to check if a piece of property has been registered. So the whole formalisation of the process of using your fridge, your stove, your sofa, et cetera, apart from your land, your house as collateral with the advent of the registry, it became a lot easier for people to get loans using those items of collateral,” Wignall said.Wignall said he would “absolutely” encourage the members of the MSME Alliance, which is a network of business organisations representing more than 300,000 MSMEs in Jamaica, to use the facility.

“It’s something that would help them to get loans…it’s a good thing,” he said, noting that small businesses still have challenges accessing financing, but he is hoping this will change if the registry is widely used.

Further, during last week’s committee meeting, the Companies Office of Jamaica (COJ), which is responsible for administering the NSIPP Registry, also revealed that there are persons who are aware of the registry but choose not to use it for various reasons.

Registrar of companies and acting chief executive officer, COJ, Shellie Leon, told the committee that hire purchasers, for example, indicated that because of the number of notices that they have to file, they would want a lower registration fee for their sector.

“So it had been represented to us that they had done an in-house consultation and…regarding the level of risk, they had actually made a decision that they would not register notices. As you know, it’s not a compulsory regime; it’s merely to protect personal interests,” she said.

She noted that the take-up from industry players was also not great because the financial products available needed diversification.

Minister of Industry, Investment and Commerce Senator Aubyn Hill, who chairs the committee, raised concern about the $1,000 fee charged for the registration of notices, saying he did not see “why we’re going to encourage micro people…to pay any fee”.

“[With] this registry we do have to pay in terms of upgrading the software and staffing as well. So we are responsive to the customers,” said Leon.

But Hill said: “There should be absolutely no fee. There must be a place in the ministry that we can find to cover your expense. Talk to the permanent secretary; for [even] a period of time at least when we want people to engage in this; there should be no fee,” he insisted.

Leon explained that it is the financial institutions that actually pay the $1,000.

“So by and large, of the users of the registry, it’s only one industry that has complained regarding the registration fees and the registration fees in Jamaica they are way less than other jurisdictions,” she said.

Leon said financial institutions pay that fee except for hire purchasers.

Hill also expressed concern regarding the lack of knowledge about the registry and urged the COJ to work with the ministry “to make sure that we get much more information out, educate people as [this registry] exists”.

Registry users can be individuals, companies, government departments, statutory bodies, government agencies and other corporate bodies.

The registry seeks to provide a practical, effective and sustainable system for publicising rights so that other potential lenders can determine whether an asset has already been pledged to somebody else. It also allows the creditor to file notice that specifies the parties to the loan agreement and describe the collateral that has been pledged.

In addition, it allows for the establishment of priority rights to collateral in the event of dispute among creditors and other third parties stated in the security agreement itself; and alert prospective creditors and buyers of possible prior security interest in the debtor’s property.