UAE MoF mulls asset mortgage database

The UAE Ministry of Finance, or MoF, is currently evaluating setting up an organisation to keep records of mortgages of capital assets to ensure funding for national small and medium enterprises, it was announced by MoF undersecretary Younis Haji Al Khouri.

Al Khouri said studies have been in progress from the beginning of this year, in line with the decisions announced by the UAE cabinet. The MoF has created a committee to follow up on the research progress which includes members from the Ministry of Economy, the Central Bank and other specialised parties.

The MoF’s studies are meant to alleviate the financial challenges facing national SMEs. These include lack of funding options, the reluctance of banks to accept credit requests, difficulty in obtaining funding from banks, and other obstacles which are a direct result of the inability of new businesses to utilise their capital assets as guarantees due to lack of a special entity to register these assets.

According to Al Khouri, there were many benefits for establishing a specialised record for mortgages of capital assets. It will provide more financing options and will lower the interest on small and medium investments. This will also allow new businesses to use their assets as guarantees to receive funding.

“There were many conditions that need to be taken into consideration when mortgaging capital assets. There had to be a wide range of rights pertaining to these assets, such as the guarantee of tangible and intangible assets in the present and the future, including their products and returns, in addition to allowing all capable natural and legal persons of applying these rights. It should also aid in finding property rights to pay back obligations,” he stated.

Al Khouri emphasised the importance of guaranteeing security principles for capital assets in order to determine the order on competing claims for guarantees, in addition to putting policies in place to ensure that relevant laws do not contradict. He also stressed the importance of sharing details of court cases pertaining to transferable properties to ensure transparency between all three parties. He said that it was not enough to make announcements via public records only, but also through creditors, possession or control of the creditor, or agent of the creditor.

To properly implement this initiative, a number of issues need to be in place. These include the determination of specific guarantees that do not include future assets, in addition to clarifying implementation mechanisms that might require adjustments in the future. This will ensure that the system is transparent and fair and that it guarantees equal opportunities for all competing benefits, including government privileges and offers a central record for providing transparency guarantees.

Furthermore, the initiative should provide accurate information, allow for quick registration and searches, provide easy access of information at all times, and limit the possibility of errors. It should also be cost-efficient where fees cover operation costs without resulting in profit for the government.

Al Khouri said the committee concerned with studying this project has researched the best practices applied globally regarding issues such as obtaining credit and guarantee ratings that were received by capital organisations. He also indicated that applying this project requires 18-24 months on average.

Article by Links Group on Dec 10th 2011