Scope of Financial Institution Act, 2016 Expanded for Getting Credit and Provide More Protection to Lenders and Borrowers
|Reform Description||Financial Institutions Act, 2016 amended for Enhancing Access to Credit by Financial Institutions Against Moveable & Immoveable, Existing and Future Assets and Providing More Protection to Borrowers and Lenders
Before: Only incorporated companies were getting loans against immovable assets. Besides, only current assets could be kept as collateral for loans. This situation was difficult for businesses as it restricted the access to credit
After: Now, businesses can get loans against their moveable assets as well and unincorporated entities are also eligible for loans. Besides, future assets can also be kept as collateral for getting loans. Such practices are considered business friendly and improvement is expected in the ranking in Getting Credit indicator in Doing Business report, 2021.
|Beneficiaries||Businesses/Individuals (Creditors, Debtors) of all Sectors.|
|Jurisdiction/Location||All over Pakistan|
|Date of Implementation||29-04-2020|
|● Businesses were getting loans only against immovable assets and only incorporated companies were eligible for these loans. Security interests were only extended to current assets, secured creditors were not on priority when the businesses defaulted.|
|Analysis||● The world experience reflected that most of the countries have expanded access to credit by introducing legal frameworks containing broader scope and protection. Pakistan also needs to amend its Secured Transaction Act, 2016 to enhance access to credit|
|Solution||● Accordingly, the amendments have been made in Secured Transaction Act 2016 for;
○ Credit availability for moveable and immoveable assets,
○ Priority of creditors when business defaults, and
○ Security interests on future acquired assets.
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