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Bangladesh - Bank & Finance - Technology - June 20, 2023

Security asset will be forfeited, if default

Secured Transactions Act is final

Bill to be presented this week

Mahfuja Mukul: If the borrower defaults, the ‘immovable property’ of the collateral will be forfeited. Besides, repossession of movable property can also be taken. The Lending Institution shall have control and custody of the collateral until the account of the defaulter is settled.
Keeping these provisions, the ‘Secure Transactions (Immovable Property) Act 2023 has been finalized. In this act, 16 types of immovable assets have been recognized as acceptable security for taking bank loans. Although currently banks and financial institutions consider only immovable property as collateral for loans.
According to sources, the law is likely to be tabled in the National Parliament this week in the form of a bill. For this, Finance Minister AHM Mustafa Kamal approved a summary of the Secured Transactions (Immovable Property) Act. Earlier, the cabinet approved the final draft of this law on May 15.
After the implementation of the new law, if someone needs it, they can take a loan against the fixed deposit (fixed deposit), gold and silver or raw materials kept for export outside the country.
If asked, the former governor of Bangladesh Bank Salehuddin Ahmed told that the provision of lending against 16 immovable properties will increase the scope of bank loans. Earlier loans were not given on any security other than immovable property. But the question is about ownership of immovable property. Because if the loan is given on the fish in the pond, then the flow of fish may fluctuate.
Many people are farming with pond lease. As a result, ownership may change. These aspects should be taken into account while giving loans. Just doing the law will not do. Other aspects must also be taken into consideration.
Research Institute Policy Research Institute (PRI) executive director Ahsan H. Mansoor told that this law can bring changes in the banking sector. Because it has been done with time. If I say Google has property but it is not immovable, immovable. And that is Google’s software.
It cannot be seen or touched. But the market price is very high. As a result, the bank can definitely give loans in case of such things. A company also has goodwill. That company can get loan against goodwill. Because that company has market value. But there may be some risk. The board and management council of the bank should be careful in that regard.
The law also states that loans cannot be taken from multiple institutions with the same immovable property as collateral. And to fulfill the purpose of the law, multiple commercial or secured transaction courts can be established in each district headquarters. In that case, the government will take the advice of the Supreme Court.
According to sources, in this law, loans can be taken from banks or financial institutions against immovable assets like gold and silver and intellectual property. Other immovable property shall include knowledge and intellectual property, apps, software, shares, furniture, electronic products, mechanical and non-mechanical vehicles. Also taken into consideration are aquatic animals, livestock, stocked agricultural produce, trees, annuities and funds receivable under insurance policies and debentures etc.
The applicant for the loan should have ownership over the immovable property. It should also have market value. Also, the immovable property should have a minimum economic life till the tenure of the loan. However, the immovable property must be registered for mortgage.
Apart from this, a separate authority will be set up for asset registration and valuation of collateral immovable property. It is known that in April 2022, it was decided to create an opportunity to take bank loans against immovable property. At that time the Financial Institutions Department of the Ministry of Finance prepared the draft.
Then the cabinet approved the draft last May. The then cabinet secretary Khandaker Anwarul Islam said that the decision to make the new law was made mainly thinking about the small and medium level entrepreneurs. Although this law has been in place abroad for a long time, this type of law is going to be introduced in Bangladesh for the first time.
The Act will apply to any bank, insurance, financial institution, micro-credit institution, housing loan corporation, agricultural bank, public-private lending institution, cooperative society and development aid institution.
A senior official of the Financial Institutions Department of the Ministry of Finance involved in this process said that in terms of giving loans, a culture of mortgages centered on immovable properties such as land and houses has developed in our country. The bank did not want to go beyond that, and legally could not. But in modern economy many more things are added like intellectual property, brands etc. In that case there should not be a narrow definition of property.
Sources further said, the Act does not include current and future wages, salaries, allowances or commissions, any other form of labor or remuneration for personal services, other than professional service fees, under immovable property.

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