The Practicability of Farming Product Secured Credit in Ethiopia: Some Insights

Abstract

Abstract

Many countries in the world made a reform in their secured transaction law on the movable property to unlock access to credit to society. Recently, Ethiopia also made a reform on its personal property secured transaction law by proclaiming a comprehensive movable property security rights proclamation. This proclamation provides extensive lists of movable properties that a debtor can grant to secure creditor’s right. Farming product is one category of personal property that the proclamation allows the debtor to use as collateral to secure creditor’s right. However, though the proclamation explicitly entitles debtors to grant their farming product as collateral, it is very doubtful whether it is going to be practicable. The purpose of this note is, therefore, to assess the practicability of farming product secured credit in Ethiopia. In addressing this issue, the writer adopts a qualitative research approach and typically doctrinal research type. The writer uses data collected from legislations and pieces of literature through document analysis. After evaluating the issue from different perspectives, the writer concludes that farming product secured credit will not be practicable as much as the proclamation intends. The writer identifies three critical problems that discourages to practice farming product secured transaction in Ethiopia. Firstly, it is difficult to perfect the interests of lenders since farming products are not suitable to be described in a manner that reasonably allows their identification in the collateral registry. This will discourage lenders to receive farming product collateral since their right cannot be properly perfected. Secondly, it does not protect lenders from competition from buyers of farming products in the ordinary course of the seller's business since the proclamation gives priority right to the latter. Thirdly, since farming products are exposed to risks or natural catastrophes and, most farmers cannot afford to buy an insurance policy for collateralized properties, lenders may not be interested to enter farming product secured transaction.