A n ew study conducted by the Caribbean Policy Research Institute (CAPRI) entitled ‘Cheque in Increasing Access to the Formal Financial System’ has found that the Security Interest in Personal Property Act (SIPPA), which was passed in 2013, has been underutilised.

This Act enables individuals and businesses to register a variety of movable assets which can in turn be used as collateral for loans. However, the study found that the registry is underutilised, particularly by small businesses.

“Currently, there are about 100,000 movable assets that have been registered. Approximately 63 per cent represent ownership by consumers, and only 9 percent small enterprises. Further, based on the collateral that has been used to secure loans, the majority were for loans to individuals (83 per cent) as distinct from commercial loans (3.3 per cent),” the study outlined.

The study notes that this trend is an indication that usage of the registry affects access to credit.

Researchers said, “This is so as unregistered movable collaterals are typically not accepted by lending institutions. The underutilisation is also evident from the mix of assets being registered. Almost 80 per cent of the assets are motor vehicles. Assets that are distinct to small businesses such as machinery, office equipment, account receivables and crops are not being registered or utilised as collateral.”

The CAPRI study highlighted that the underutilisation of the registry and the narrow range of assets registered is partly dependent on whether banks see the registered asset as suitable collateral. “Lending institutions consider motor vehicles to be one of the most acceptable forms of movable collateral. Crops and intellectual property rights are, for the most part, not considered.”

“Other movable assets, like machinery, office equipment, inventory, and accounts receivables are accepted by some institutions but require supplementary collateral; in some instances, the Government provides partial loan guarantees to help overcome the barrier of insufficient collateral,” the study found.

However, banks’ reluctance to accept some of these assets is primarily due to the absence of a key element to movable asset-based lending: An established secondary market. The study defines a well-functioning secondary market as being crucial to provide creditors with updated market-based valuations of and historical information on movable assets. It further stated that secondary markets also enable the timely disposal of assets in the event of loan default, reducing the risks of losses to lending institutions.

However, the study found that “in Jamaica, while secondary markets exist, they are underdeveloped. They are fragmented and utilise traditional means, like newspapers or informal trading, to facilitate the disposal and trade of movable assets. They also offer limited services for valuation of assets and secure payment mechanisms which are required by formal lending institutions to complete transactions. As a result, lending institutions are challenged in conducting proper risk assessments for some movable assets and so are reluctant to accept them.”