Movable Property Security Rights in Kenya: How the 2017 Act Changed Asset-Based Lending

A Kenyan business does not need land or a building to borrow against. Since 2017, inventory, receivables, equipment, motor vehicles, and even intellectual property can serve as collateral for credit under a single, modern statute: the Movable Property Security Rights Act. For SMEs without title deeds to offer a bank and for lenders structuring asset-based finance, this Act, not the older chattels-mortgage regime, is now the operative legal framework. This article covers what a security right is, how one is validly created, and how it becomes effective against third parties; a companion piece covers registration, priority, and enforcement mechanics.

The Legal Basis: The Movable Property Security Rights Act, 2017

The Act, now Chapter 499A of the Laws of Kenya, was assented to on 10 May 2017. It consolidates what had previously been a fragmented set of rules across chattels transfer law, sale of goods law, and various sector-specific instruments into a single framework covering the creation, registration, priority, and enforcement of security rights in movable assets. It sits alongside, rather than replaces, the law governing charges and mortgages over land, which remains a separate regime.

What Counts as a Security Right, and What Can Be Used as Collateral

A security right under the Act is a property right in a movable asset created by agreement to secure payment or performance of an obligation. The Act is deliberately broad about what can serve as collateral: any type of movable asset, whether tangible or intangible, can be encumbered, including future assets not yet owned by the grantor, generic categories of assets, and even the entirety of a grantor’s movable property. This covers inventory, receivables, equipment, motor vehicles, negotiable instruments, and intellectual property, giving businesses without real property a genuine route to secured borrowing.

Creating a Valid Security Right: Section 6

Section 6 sets out the formal requirements. A security right is created by a security agreement that must be in writing and signed by the grantor, and it must identify the grantor and secured creditor, describe the secured obligation, and describe the collateral in a way that reasonably allows it to be identified. The grantor must have rights in the asset, or the power to encumber it, at the time the security right attaches. A generic description, such as “all inventory” or “all present and after-acquired equipment,” is generally sufficient to meet the identification requirement, which is what allows revolving asset-based lending facilities to work in practice.

Effectiveness Against Third Parties: Registration Under Section 15

Creating a security right between the grantor and the secured creditor is only the first step. For that right to bind third parties, including a subsequent buyer of the collateral or another creditor of the grantor, a notice of the security right must be registered. The Act’s registration requirement is what allows a lender’s interest to survive a sale of the collateral to someone who did not know about it, and it is what allows competing creditors to establish priority by reference to a public record rather than private agreements they cannot see.

Why This Matters More Than the Older Chattels Regime

Before this Act, a lender taking security over movable assets in Kenya generally relied on instruments developed for a narrower set of transactions, such as a chattels mortgage or a bill of sale, which tended to require a fixed, itemised list of assets and offered limited protection once those assets changed form or location. A business whose main working assets are a rotating stock of inventory or a pool of trade receivables that turns over constantly does not fit well into that model. The Act’s recognition of generic, after-acquired collateral descriptions and of receivables and intangibles as eligible collateral is what makes asset-based lending against a revolving pool of stock or debtors practically workable in a way the older regime did not support.

Practical Implications for Borrowers and Lenders

For an SME, this framework means inventory, trade receivables, and equipment that would previously have sat unused as collateral can now support a formal, registrable security interest, widening the pool of assets available to raise working capital finance without needing land or a building to pledge. For a bank, SACCO, or digital lender, the Act provides a single, predictable set of rules for taking security over a business’s movable assets rather than relying on the older, narrower chattels-transfer instruments, and it allows a facility to be secured against a fluctuating pool of stock or receivables rather than a fixed, itemised list that quickly goes out of date. Both sides should be precise in drafting the collateral description in the security agreement itself, since ambiguity here can create disputes later about exactly what the lender’s interest actually covers, and a lender should not assume that describing collateral broadly removes the need to keep the security agreement itself current as the underlying business and its asset base change.