The Kenyan government is on the verge of a significant legislative shift with the introduction of the Movable Property Security Rights (Amendment) Bill, 2024. This proposed law aims to modernize and consolidate existing regulations governing movable property transactions, which will have widespread implications for businesses and lenders across the country.
According to Sammy Ndolo, Managing Partner at leading law firm Cliffe Dekker Hofmeyr (CDH) Kenya, the Bill seeks to update and unify the Movable Property Security Rights Act (MPSRA) and the Companies Act, while repealing the outdated Hire Purchase Act. “If passed, this Bill will be a major step forward in regulating movable property transactions and hire purchase businesses,” says Ndolo.
A Long-Awaited Reform
The current MPSRA, introduced in 2017, was intended to simplify the use of movable assets—such as vehicles, equipment, and livestock—as collateral. However, it has faced criticism for overlapping with other laws like the Companies Act and the Hire Purchase Act, the latter of which dates back decades and is seen as a hindrance to modern business practices.
With the 2024 Amendment Bill, Kenya is poised to bring its regulatory framework up to speed with contemporary business needs. One of the key reforms is the repeal of the Hire Purchase Act, which many in the business community have long argued is outdated and cumbersome.
Key Changes in the 2024 Bill
Among the major changes proposed in the Bill is the expanded definition of a hire purchase agreement. It now includes transactions where the purchase price is financed by either the seller or a third party. Additionally, all entities involved in hire purchase agreements will be required to obtain licenses, which could simplify regulatory oversight but may also introduce new bureaucratic challenges for businesses operating in this sector.
“While the Bill aims to simplify the licensing process, it may also lead to increased administrative work. However, excluding financial institutions already licensed by the Central Bank of Kenya (CBK) from this requirement could ease the burden for some entities,” Ndolo explained.
CBK’s Role in Interest Rate Regulation
One of the more controversial provisions of the Bill is the proposal to give the Central Bank of Kenya (CBK) the power to regulate interest rates on hire purchase agreements. While it remains unclear whether the CBK will set specific rates or simply oversee them, this change could impact the attractiveness of hire purchase arrangements for consumers and businesses alike. Ndolo cautioned that it might complicate the market for these financial products.
Changes to Repossession and Registration of Charges
Another notable amendment is the overhaul of repossession rules. Under the current Hire Purchase Act, repossession of goods requires a court order if more than two-thirds of the purchase price has been paid. The new Bill does away with this restriction, allowing for more straightforward repossession procedures, which could be both a boon for sellers and a potential risk for consumers.
The Bill also introduces clarifications regarding the registration of charges created by companies. Notably, it proposes removing book debts from the list of charges that require registration under the Companies Act, which has been a point of confusion for many businesses.
Greater Flexibility for Borrowers
In a move that favors borrowers, the Bill allows them to request the cancellation of security registration notices if the security right is no longer valid. This provision is designed to address the frequent delays caused by secured creditors who fail to cancel registration notices due to administrative backlogs or lost credentials.
What’s Next?
The Bill is currently under review by the parliamentary committee on finance and is expected to be debated in the coming months. If passed, both businesses and consumers will need to quickly adapt to the new regulatory landscape, as the reforms could reshape how movable property transactions and hire purchase agreements are conducted in Kenya.
“If approved, this Bill will mark a significant shift in how movable property transactions are regulated in Kenya, potentially bringing both new opportunities and challenges for businesses,” Ndolo concluded.
As Kenya moves towards a more streamlined and modern approach to movable property security rights, businesses must stay informed and prepared for the forthcoming changes to avoid any disruptions in their operations.
