Financial institutions often require different kinds of collateral or securities in instances where their customers are seeking loans.
There are a number of categories of assets that borrowers can provide as security to lending institutions in Kenya and in this article, we explore the various categories in detail.
Shares
Security over shares in a listed company can be taken by way of a pledge of shares (charge over shares) or a deposit of share certificates.
- Charge: Security over shares can be taken by way of a fixed or floating charge.
- Deposit of share certificates: Where shares have not been dematerialised, security can be taken over such shares by depositing the relevant share certificates with the secured party.
- Bank Accounts
Security over the proceeds of a bank account is taken by way of a fixed or floating charge.
- Land
Security can be taken over land by way of a charge, or a deposit of title deeds with the secured party.
- Contractual Rights
Security can be granted over contractual rights by way of a fixed or floating charge or an assignment, in each case provided that there is nothing in the relevant contract that prohibits the granting of such security.
- Insurance Proceeds
Security over proceeds from an insurance policy can be taken by way of a charge over, or by way of an assignment of, the relevant insurance contract
- Authorisations and Licences
Security can be taken over authorisations and licences by way of a fixed or floating charge or an assignment, in each case provided that there is nothing in the relevant contract, licence or authorisation that prohibits the granting of such security or assignment thereof. Many authorisations and licences (such as oil mining licences, mining permits, electricity generation and distribution licences and rights under petroleum agreements) are considered to be personal to the beneficiary or licence holder and therefore will prohibit the holder from assigning, charging or otherwise encumbering such authorisation or licence without the prior consent of the issuing authority.
- Intellectual Property
A company will typically take security over trademarks, copyrights and other intellectual property by way of a fixed or floating charge.
- Personal Property and Tangible Assets
Security in the form of a fixed or floating charge or a pledge may be taken over personal property such as merchandise/goods. Special rules apply regarding the taking of security over aircraft and ships.
