The Kenyan government is considering a major overhaul of laws related to security rights over movable property with the introduction of the Movable Property Security Rights (Amendment) Bill, 2024 (Bill).
According to Managing Partner at leading law firm Cliffe Dekker Hofmeyr (CDH) Kenya, Sammy Ndolo, this new legislation is all about updating and unifying existing rules, impacting the Movable Property Security Rights Act, Cap 499A Laws of Kenya (MPSRA) and the Companies Act, Cap 486 Laws of Kenya (Companies Act). At its core, this Bill proposes to repeal the archaic Hire Purchase Act, Cap 507 Laws of Kenya (Hire Purchase Act).
“If passed, this Bill will be a major step forward in regulating movable property transactions and hire purchase businesses,” says Ndolo.
The current MPSRA, introduced in 2017, aimed to streamline the use of movable assets as collateral, but has faced criticism for its overlap with other regulations, such as the Companies Act and the Hire Purchase Act. The latter, in particular, has long been seen as outdated and burdensome for businesses.
The Bill introduces several key changes. It expands the definition of a hire purchase agreement to include transactions where the purchase price is financed by the seller or a third party. “Under the Bill, all entities involved in hire purchase must be licensed, which could streamline regulations but may also increase bureaucratic hurdles for some businesses and expand the regulation of lending business. While the Bill aims to simplify the licensing process, it may also lead to increased administrative work, and excluding financial institutions already licensed by the Central Bank of Kenya (CBK) could ease this burden,” Ndolo explains.
The Bill also proposes that CBK set interest rates for hire purchase agreements, though Ndolo says it is unclear whether the CBK will set specific rates or merely monitor them. He expressed concern that this could complicate and potentially reduce the attractiveness of hire purchase deals.
In addition, the Bill changes how repossession of goods sold under hire purchase terms is handled. Unlike the Hire Purchase Act, which requires a court order for repossession if more than two-thirds of the purchase price has been paid, Ndolo says the Bill does not include similar restrictions.
Another change includes clarifying registration requirements for charges created by companies. The Bill proposes excluding book debts from the list of charges needing registration under the Companies Act, addressing previous confusion.
The Bill will also allow borrowers to request the cancellation of security registration notices if the security right is no longer valid. This provision aims to address failure by secured creditors to cancel registration notices often caused by administrative delays and lost credentials.
According to Ndolo, the Bill is currently under review by the parliamentary committee on finance and is expected to be debated in the coming months. If passed, businesses and consumers alike will need to quickly adapt to the new regulatory environment.
“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,” concludes Ndolo.
