Secured Transactions Reforms, Collateral Registry, and Lending Practices in 2026

Secured lending remains central to Kenya’s banking and finance sector, where access to credit often determines whether businesses expand or stall. In a market where many borrowers, especially small and medium enterprises, hold more movable assets than land or buildings, reforms to secured transactions law have sought to unlock this potential while protecting lenders from excessive risk. The Movable Property Security Rights Act of 2017 (MPSRA) introduced a modern framework, supported by an electronic Collateral Registry managed by the Business Registration Service (BRS).

By 2026, ongoing policy developments, including the BRS Draft Secured Transactions Policy published in March 2026, continue to shape lending practices. These reforms aim to increase the use of movable collateral, improve transparency through registration, and adapt to new asset classes. Yet tensions persist between the need for efficient credit access for borrowers and robust risk protection for financial institutions. Lenders seek swift enforcement and clear priority, while borrowers require fair processes and protection from overreach. This balance influences everything from loan pricing to dispute resolution in Kenyan courts and daily customer interactions with banks.

Grounded in practice, these changes matter because weak security arrangements previously limited lending, particularly to SMEs reliant on equipment, inventory, or receivables. Banks report greater confidence in collateral when properly registered, but challenges around perfection, emerging digital assets, and enforcement remain. Understanding the current framework helps both institutions and customers navigate lending more effectively.

BRS Policies and the Evolving Secured Transactions Framework

The Business Registration Service plays a pivotal role in Kenya’s secured transactions ecosystem as the administrator of the Collateral Registry. Under the MPSRA, BRS maintains an electronic system that allows public registration and searching of security rights in movable property. This notice-based registry replaced fragmented paper-based systems, providing a single point for recording interests and determining priority.

In March 2026, BRS released a Draft Secured Transactions Policy that builds on the 2017 Act. The draft emphasizes strengthening the registry’s reliability, promoting interoperability with other systems such as those for companies or transport, and addressing gaps in handling modern financing arrangements. It highlights the need for greater uptake of registered movable collateral to support financial inclusion, while acknowledging rapid digitization in financial markets. Stakeholders, including banks and borrowers, have been consulted to refine these policies.

For banks, alignment with BRS policies means integrating registry checks into credit processes. Borrowers benefit from clearer rules that can reduce borrowing costs when assets are easily used as security. However, the policy process also reveals ongoing coordination challenges among institutions like the Central Bank of Kenya (CBK), the judiciary, and BRS itself. Effective implementation will require practical guidance that supports both lender confidence and borrower access without creating unnecessary administrative burdens.

Perfection of Security Interests

Perfection refers to the steps that make a security interest effective against third parties, such as other creditors or a trustee in insolvency. Under the MPSRA, the primary method of perfection for most movable assets is registration of an initial notice in the Collateral Registry. This notice-filing system does not require filing the full security agreement but provides public notice of the creditor’s claim.

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In practice, timely registration protects the lender’s priority, generally following a first-to-register rule. A properly perfected security interest gives the bank stronger recourse if the borrower defaults or faces competing claims. For borrowers, understanding perfection helps in negotiations, ensuring that security agreements accurately describe the collateral and that registration occurs promptly to avoid disputes. Failure to perfect can leave a lender vulnerable, as seen in cases where unperfected interests lose priority in borrower insolvency.

Kenyan courts have reinforced the importance of compliance with registration requirements. Lenders must ensure notices contain accurate details about the grantor and collateral to maintain effectiveness. This legal clarity supports smoother lending but also places responsibility on both parties to handle documentation carefully. Banks often conduct pre-registration due diligence, while borrowers should verify that registrations reflect agreed terms to prevent future challenges.

Digital Assets as Collateral

Digital assets, including cryptocurrencies and tokenised instruments, represent an emerging frontier for collateral in Kenyan lending. As the country develops its Virtual Asset Service Providers framework, questions arise about how these assets fit within the MPSRA regime. Intangible movables under the Act already encompass receivables, intellectual property, and choses in action, providing a potential foundation for digital collateral.

In 2026, with regulatory developments around virtual assets advancing, banks explore accepting digital holdings where custody, valuation, and control can be established. Perfection would typically involve registry registration, though control mechanisms, such as wallet access, may gain importance for certain assets. Borrowers with digital portfolios gain opportunities to leverage these for credit, but volatility and regulatory uncertainty require careful structuring.

Both sides must address practical risks. Lenders need robust valuation methods and custody arrangements to mitigate loss of value or unauthorised transfers. Borrowers should negotiate clear terms on asset handling and default triggers. The Draft Secured Transactions Policy signals openness to evolving asset classes, suggesting future amendments could provide greater certainty. Until then, parties rely on existing movable property rules while monitoring CBK and BRS guidance for alignment with broader financial innovation goals.

Enforcement of Security Rights

Enforcement becomes critical when a borrower defaults. The MPSRA allows secured creditors to exercise remedies under the security agreement, the Act itself, or other laws. Common options include taking possession, leasing, appointing a receiver, selling the collateral, or suing for the debt. Out-of-court enforcement is possible after proper notice to the grantor, promoting efficiency while requiring procedural fairness.

In practice, banks value these streamlined processes for reducing recovery time and costs compared to older regimes. However, borrowers often seek court intervention if they perceive enforcement as unreasonable or procedurally flawed. Kenyan decisions emphasise the need for adequate notice and commercial reasonableness in sales, protecting against undervaluation or hasty actions. This judicial oversight maintains balance but can extend timelines if disputes arise.

Effective enforcement depends on prior perfection and clear documentation. Lenders mitigate risks through well-drafted agreements that specify default events and remedies. Borrowers benefit from negotiating grace periods, restructuring options, and transparency in valuation processes. CBK consumer protection initiatives further encourage fair treatment, pushing institutions toward supportive engagement with distressed borrowers before aggressive recovery.

Practical Implications for Banks and Borrowers

Banks can strengthen risk mitigation by embedding Collateral Registry searches and filings into standard credit workflows. Regular training on MPSRA requirements and monitoring BRS policy updates help avoid common pitfalls like incomplete notices. Diversifying collateral types, including careful assessment of digital assets, broadens lending portfolios while demanding updated valuation and custody protocols.

Borrowers should approach documentation thoughtfully, ensuring security agreements precisely identify assets and obligations. Negotiating balanced terms, such as reasonable notice periods and redemption rights, protects interests without undermining lender confidence. Seeking independent legal advice before signing and maintaining accurate records supports smoother transactions and reduces dispute likelihood.

Both parties gain from open communication during the lending cycle. Early engagement on potential difficulties can lead to restructurings that preserve relationships and asset value, aligning with broader financial inclusion and stability objectives promoted by the CBK.

Conclusion

Kenya’s secured transactions reforms, anchored by the MPSRA, the BRS Collateral Registry, and the 2026 Draft Policy, have modernised lending by enabling greater use of movable and emerging digital assets as collateral. Perfection through registration, combined with clearer enforcement pathways, enhances predictability for banks while expanding credit access for borrowers. Yet success depends on practical application, ongoing stakeholder coordination, and adaptation to technological change.

Financial institutions that invest in compliance and fair processes will better manage risks and support sustainable portfolios. Borrowers who engage proactively with documentation and negotiations position themselves for stronger partnerships. Looking ahead, further harmonisation and potential legislative tweaks around digital assets promise even greater efficiency. In this evolving landscape, informed participation by all parties will determine how effectively these reforms drive inclusive economic growth in Kenya.