Codification, Valuation and Registration of Movable Properties as Collateral for Credit Directive

Issuing Authority

National Bank of Ethiopia

Implements

Movable Property Security Right Proclamation No. 1147/2019

WHEREAS, it is necessary to effectively support, promote and speed up the overall process of credit transactions against movable collateral; minimize potential risks of the secured creditors associated with extending credit against movable collateral; and help debtors/grantors to easily pledge their movable assets as collateral for credit;

WHEREAS, movable properties to be pledged as collateral for credit essentially require codification, valuation and registration in the Movable Collateral Registry;

WHEREAS, stipulating the roles and responsibilities of certain institutions that have direct connection in facilitating and effecting credit transactions against movable collaterals sought essential;

NOW, THEREFORE, in accordance with Article 94(2) and 95 of Movable Property Security Right Proclamation No. 1147/2019, the National Bank of Ethiopia issued this Directive.

1. Short Title
This Directive may be cited as “Codification, Valuation and Registration of Movable Properties as Collateral for Credit, Directive No. 186/2020”

2. Definitions
For the purpose of this Directive, unless the context provides otherwise:
2.1. “applicator” means a device that is used to fix codified identification tags on the
ears of a livestock offered as collateral for credit;
2.2. “control agreement” with respect to electronic documents means an agreement in writing among the issuer, the grantor and the secured creditor, according to which the issuer agrees to follow instructions from the secured creditor with respect to the documents without further consent from the grantor;

2.3. “debtor” means a person that owes payment or other performances of a secured obligation

2.4. “development agents” means professionals of the Ministry of Agriculture who pass to the farmers and pastoralists new ideas developed by agricultural research, provide information and technical advice on agriculture to support and enhance
the sector production and productivity;
2.5. “farm products”
include crops, fruits, vegetables, forests, and floricultures;
2.6. “financial institutions” means banks and microfinance institutions;
2.7. “financial instruments” include bonds, shares, treasury bills, vouchers, bills of lading, promissory notes, warehouse receipts, notes receivable, certificates of deposit;
2.8. “forest” means trees, plants and other biodiversity accumulation at and in the surrounding of forest lands, road sides, riversides, farms and grazing land as well as residential areas or parks that grow naturally or developed in some other ways;
2.9. “grantor” means a person that creates a security right to secure either its own obligation or that of another person; a buyer or other transferee, lessee, or licensee of the collateral that acquires its right subject to a security right;
2.10. “intellectual property” includes copy right, -patent, industrial design and trademark;
2.11. “land holding certificate” means a certificate issued by authorities, identified by unique parcel identification number, for the use of a certain plot of land;
2.12. “land use right” means a right given to a person by authorities through the issuance of a land holding certificate or that created by a contract agreement between the owner of the land holding certificate and other person

2.13.“livestock” means any domestic animals that include camel, cattle, goat, sheep, pig, poultry, mule, horse, donkey, bees and fish;
2.14. “movable property” takes the meaning as stipulated in sub article 2.27 of Proclamation No. 1147/2019;
2.15. “Movable Collateral Registry” means an electronic system for receiving, storing
and making accessible to the public information about security rights and nonconsensual rights in movable property;
2.16. “Movable Collateral Registry Office” means an office established to manage the
Collateral Registry; .
2.17. “National Bank” means the National Bank of Ethiopia;
2.18. “person” means natural or legal person;
2.19. “plastic ear tag” means a tag having a unique code, made of plastic, affixed on the specified ear (s) of some livestock such as cattle, sheep and goats when they are being pledged as collateral for credit;
2.20. “Proclamation” means Movable Property Security Right Proclamation No. 1147/2019;
2.21. “search certificate” means an official document generated by the Movable Collateral Registry in response to a search request against the prescribed criteria;
2.22. “secured creditor” means a person that has a security right or non-consensual creditor;
2.23. Expressions in the masculine gender includes the feminine;

3. Scope

This Directive shall apply to rights in movable property created by agreement that secure payment of credit or other performance of an obligation.

4. General provisions

4.1. All credits extended by banks or microfinance institutions against movable property as collateral shall be made against:

4.1.1. tax identification number or equivalent issued by Ministry of Revenue,

4.1.2. national identification when available and shall replace the tax identification number; and

4.1.3. the passport number and the name in the passport if the debtor or the grantor is a foreign citizen.

4.2. All movable properties pledged as collateral for credit shall be kept safe and at a reasonable care by the grantor at all times as if the property is not pledged and insured.

4.3. Insurance companies may provide affordable and suitable insurance services designed for movable properties and file the premium rate chart with the National Bank.

4.4. Essential elements of this Directive, as stipulated in the specific provisions, shall be clearly incorporated in the credit contract and plainly explained to the debtor/grantor at the time of the credit agreement.

4.5. Non-performing loan provision and other credit related requirements stipulated by directives issued by the National Bank shall remain binding.

4.6 Movable properties that are not referred in this Directive such as business mortgage, machineries and vehicles shall follow the existing practice of the secured creditors, Directive No MCR/01/2020, the provisions of the Proclamation and other requirements stipulated in other directives issued by the National Bank.
4.7. In case of default, the secured creditor to exercise its rights on the collateral shall observe and comply with the relevant provisions of the Proclamation.
4.8. Irrespective of the type of movable collateral, the secured creditor shall use the value indicators set by professionals and/or any orgartization providing such services. However, the discretion for the ultimate value decision of the Collateral shall be retained by the secured creditor.
4.9. This directive shall operate together with the provisions of the Proclamation, requirements of the Movable Collateral Registry and relevant directives issued by the National Bank for credit.
5. Livestock Codification, Valuation and Registration
5.1. Livestock Codification
5.1.1. The secured creditor shall first check and ensure the physical existence, ownership status and the overall condition of the livestock that is being offered as collateral.
5.1.2. Any livestock offered as collateral for credit shall be codified using plastic ear tag (Annex 1 & 2) to be supplied by Ministry of Agriculture or its authorized distributor.
5.1.3. Any change in the codification type and method that is stipulated under sub article 5.1.2 shall be notified to the secured creditors by the National Bank.
5.2. Livestock Valuation
5.2.1. Ministry of Agriculture shall enhance and continue carrying out monthly price information update on livestock and continuously post it on its web page maintained for the purpose;

5.2.2. The secured creditor shall also use price information of the market and that is released by any other reliable sources as input to determine the value of the livestock. However, the ultimate decision on the value of the livestock shall be made by the secured creditor.

5.3. Livestock-Registration

5.3.1. A livestock that is being offered as collateral for credit shall be registered in the Movable Collateral Registry by the secured creditor using:

5.3.1.1. tax identification number or equivalent of the person who owns the livestock, and

5.3.1.2. by describing the plastic ear tag number of the livestock on the field provided by the Movable Collateral Registry.

5.3.2. The secured creditor may request insurance for the livestock that is being pledged as collateral.

5.4. Duties of Ministry of Agriculture

The Ministry of Agriculture shall:

5.4.1. ensure that adequate number of plastic ear tags and applicators are always

available and be supplied to secured creditors upon request;

5.4.2. inform by circular or any other feasible means to development agents such affairs of providing credit against movable collateral by financial institutions so that they can aware and educate pastoralists, farmers, MSMEs and support financial institutions as need arises; and

5.4.3. notify the National Bank in advance about any change to be made in the method and type of livestock codification that is stipulated under sub article 5.1.2.

5.5. Duties of a Secured Creditor

The secured creditor:

5.5.1. as a normal practice, shall first ensure the physical existence, ownership and the overall condition of the livestock that is being offered as collateral;
5.5.2. upon pledging the livestock, shall fix the plastic tag on the ear(s) of the livestock;
5.5.3. shall clearly state in the credit contract and inform the debtor or the grantor that such livestock shall not be sold or transferred to a third party without the prior consent of the secured creditor;
5.5.4. shall cancel the notice from the Movable Collateral Registry when the credit is fully paid;
5.5.5. may request comprehensive insurance cover (theft, accident, disease, death subsequent to accidents and disease) for the livestock that is being offered as collateral; and

5.5.6. to exercise its rights on the collateral, in case of default, shall observe and comply with all relevant provisions of the Proclamation.
5.6. Duties of a Debtor/Grantor
A debtor/grantor:
5.6.1. shall allow physical inspection of the livestock being offered or used as collateral for credit any time before and after the credit is granted and when the secured creditor wants to do so;
5.6.2. shall produce ownership confirmation for the livestock, to be pledged as
collateral for credit, from kebele authorities or at least two witnesses from
a neighborhoods who have official identification card;
5.6.3. shall allow the fixing of the plastic ear tag on the ear(s) of the livestock being pledged for credit;

5.6.4. shall keep the ear tag on the livestock intact until full settlement of the credit.

If the tag is detached, damaged or lost due to any reason:

a) the grantor/debtor shall report the incident to the secured creditor and request for replacement within three (3) working days of the incident,
b) failure to comply with sub article 5.6.4(a) hereinabove shall render early settlement of the credit and/or possession of the livestock by the secured creditor, and
c) this provision shall be clearly put into the credit contract and be plainly explained to the debtor/grantor when the credit agreement is concluded;
5.6.5. shall not sell or transfer ownership of the livestock, being pledged as collateral for credit, to a third party without the consent of the secured creditor. This shall be clearly included in the credit contract;
5.6.6. if fails to comply with sub article 5.6.5 of this article,
a) the act shall be considered as offence and police shall take the necessary action,
b) shall take the responsibility for misleading the buyer,
c) the livestock shall be transferred to the secured creditor or for the nearest abattoir for sale and pay back to the secured creditor, and
d) these provisions shall be clearly put into the credit contract and plainly explained to the debtor when the credit agreement is concluded.
5.6.7. shall not sell, pledge or transfer a livestock to other persons
a) if the livestock’s ear has been cut off together with the plastic tag, deliberately or otherwise, and
b) this obligation shall be clearly put in the credit contract and plainly explained to the debtor at the time of the credit agreement.
5.6.8. if wants to sell a livestock that has plastic ear tag or whose ear is cut-off or has a pierce, shall take with it a search certificate that authenticates the livestock is free from any pledge for credit. Financial ‘institutions shall support the grantor in generating the search certificate from Movable Collateral Registry as per the requirements stated in Directive No.
MCR/01/2020; and
5.6.9. upon full settlement of the credit, shall request the creditor to cancel the notice from the Movable Collateral Registry and remove the tags from the ear of the livestock.

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