SECP to launch first collateral management company by end of FY20

KARACHI: Pakistan’s first collateral management company would be operational by the end of this fiscal year, a spokesperson of the Securities and Exchange Commission of Pakistan (SECP) said on Friday.

The company would provide storage and preservation services for a range of agricultural commodities, and would also issue credible warehouse receipts for agricultural commodity financing.

The SECP held a consultative session with the stakeholders including insurance companies, central bank, commercial banks, mercantile exchange, warehousing companies etc, in Karachi to discuss various issues at length prior to the launch of the first collateral management company in Pakistan.

“The meeting was also attended by three representatives of the International Finance Corporation (IFC), who have been assisting SECP since the beginning of this process,” the SECP spokesperson said.

The meeting discussed development of standardised insurance products for warehouse operators, development of standard operating procedures, amendments in Prudential Regulations of SBP to make warehouse receipts acceptable collateral, development of standardised agreements between banks and CMC, etc.

“It is envisaged that the collateral management ecosystem shall revolutionise the agri sector and provide myriad benefits including but not limited to reduction in post harvest losses. A well-designed warehouse receipt system will enable development of modern storage infrastructure for agriculture commodities which could save billions of rupees and make the agriculture sector more competitive,” the spokesperson said.

The meeting also discussed to protect lenders rights, in case of default by borrower or warehouse operator, what recourse is available to banks/ lenders, obligations of CMC need to be properly spelt out, moreover, insurance should cover all possible perils so that the lender/ depositor is adequately protected.

In July this year, the SECP notified Collateral Management Companies Regulations 2019, under the Companies Act, 2017. According to regulations, “Any public limited company with an equity of Rs200 million or higher will be eligible to seek the permission of SECP to register as a collateral management company.”

The spokesperson said that these consultative meetings and brainstorming sessions were on for around two months. “The stakeholders are quite positive on this and they are unanimous in their opinion that country needs such companies,” they added.

“All the homework is complete. There are some petty issues that need to be addressed on part of SECP and hopefully the country’s first collateral management company would be operational in nine months.”

These companies would carry out stock audits, as well as accreditations and inspections of warehouses. Such accreditations would be based on an evaluation of relevant documents including, but not limited to, an evidence of ownership/lease documents of warehouse, certificate of compliance of warehouse with the applicable local laws, security and insurance arrangements, and presence of all necessary equipment for loading/unloading, weighing, drying and handling commodities.

Recently, Adviser to Prime Minister on Finance Dr Abdul Hafeez Shaikh in a meeting emphasised to introduce formal commodity management and warehouse receipt financing system that was essential to address the issue of post-harvest losses and enhance the farmers’ access to agriculture credit.