From reluctance to relief with STR in movable asset financing
Financial sector credit committees were reluctant to provide financing for movable assets because they did not have a suitable legal framework, transparency, or options for lenders to seek recourse, but the Secured Transactions Registry (STR) has changed that.
Aimed at small and medium enterprises (SMEs), facilitating enhanced credit access through movable collateral, the STR was introduced as part of a collaborative effort spearheaded by the Credit Information Bureau (CRIB), in partnership with the Central Bank (CB) and the Ministry of Finance, the International Finance Corporation (IFC), a member of the World Bank Group, recently.
Pushpike Jayasundera, Director/General Manager of the Credit Information Bureau in his address at this week’s STR launch said that, in his three decades-long career he has often seen movable assets such as machinery, equipment, inventory, livestock, financial instruments, receivables, and even intellectual property being categorised as Class C securities regarded as high risk, illiquid, and unreliable for recovery.
“With the enactment of the Secured Transactions Act No. 17 of 2024, and the establishment of this electronic STR, we now have a transparent, legally enforceable, and priority-based mechanism to record security interests over movable property. More importantly, it creates a new avenue of funding for businesses, particularly micro, small, and medium enterprises (MSMEs) that often lack immovable assets but possess valuable movable resources.”
This initiative is supported by funding from the European Union’s regional programme ‘Accelerating Climate Smart and Inclusive Infrastructure in South Asia’ (ACSIIS), which has also been acknowledged.
“Historically, borrowers in Sri Lanka, especially MSMEs, have faced considerable obstacles in obtaining formal credit. This is largely been due to their inability to offer fixed asset collateral and the lack of standardised credit practices. To tackle these issues, reforms to the legal and institutional framework governing movable collateral aim to create an enabling environment that allows borrowers, particularly MSMEs, to leverage the value of their movable assets,” stated Chaaminda Bandara, Chairperson of the Secured Transaction Registration Authority.
HNB CEO, Damith Pallewatte, in his address at the launch, said that STR represents a long-awaited advancement in enhancing risk visibility and credit accessibility for SMEs. However, he emphasised that changes in lending practices and risk premiums will require time.
Mr. Pallewatte said the absence of a unified mechanism to record movable-asset pledges had long undermined confidence in collateral-based lending.
“We have seen instances where the same movable asset was mortgaged to three banks at the same time,” he said. “Now we have visibility, legal clarity, and defined priority among lenders, which is something the sector has needed for years.”
Noting that the STR allows the financial sector to look at the movable property as a risk mitigator, he said that now they can rely on these assets with more certainty when lending to higher-risk sectors because they can be recovered in case of default.
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