Leveraging Intellectual Property as Collateral in Kenya: Opportunities and Challenges

By Jerameel Kevins Owuor Odhiambo

Kenya’s Movable Property Security Rights Act (MPSR Act) of 2017 marked a progressive step in recognizing intellectual property (IP) assets, such as patents, trademarks, copyrights, and industrial designs, as viable collateral for securing loans. This legal framework empowers innovators, creatives, and businesses to unlock capital by leveraging intangible assets, fostering economic growth and innovation. With Kenya’s vibrant entrepreneurial ecosystem, IP-backed financing offers a pathway to bridge funding gaps, particularly for startups and small businesses that lack traditional collateral like real estate. However, navigating this process requires a clear understanding of legal, practical, and systemic considerations.

The MPSR Act classifies IP as a movable intangible asset, making it eligible for use as collateral in financial transactions. For IP to be legally recognized as collateral, it must be registered with the relevant authorities, such as the Kenya Industrial Property Institute (KIPI) for patents, trademarks, and industrial designs, or the Kenya Copyright Board (KECOBO) for copyrights. Registration ensures the IP’s legal enforceability and protects the lender’s rights in case of default. This legal clarity aligns Kenya with global trends, where IP-backed lending is gaining traction, but local implementation faces unique challenges.

A critical step in using IP as collateral is determining its market value, which can be complex due to the intangible nature of these assets. Borrowers must engage qualified professionals to conduct valuations using methods like income forecasting, which estimates future revenue streams from the IP, or market comparisons, which analyze similar IP transactions. Kenya’s limited pool of IP valuation experts poses a challenge, often leading to inconsistent or undervalued assessments. Developing standardized valuation frameworks and training programs could enhance credibility and encourage lender confidence in IP-backed loans.

A well-crafted security agreement is the cornerstone of IP-backed financing. This written and signed document must clearly identify the IP asset, specify the loan amount, outline repayment terms, and define enforcement rights in case of default. For instance, it should detail whether the lender can sell the IP or pursue legal remedies if the borrower fails to repay. The agreement must comply with the MPSR Act to ensure enforceability. Legal expertise is essential to avoid ambiguities that could undermine the transaction or lead to disputes.

To establish priority over other creditors and provide public notice, the security interest must be registered with the Business Registration Service (BRS) through Kenya’s e-citizen platform. This step is crucial for protecting the lender’s rights and ensuring the IP’s collateral status is legally recognized. Registration is straightforward but requires accurate documentation, including details of the security agreement and the IP asset. Failure to register could jeopardize the lender’s ability to enforce their rights, highlighting the importance of compliance with this procedural requirement.

If a borrower defaults, the MPSR Act provides lenders with clear enforcement options. They can sell the IP through a public auction or private treaty to recover the outstanding debt, pursue legal action to enforce the security agreement, or allow the borrower to redeem the IP by settling the debt. These mechanisms balance the lender’s need to recover funds with the borrower’s opportunity to retain valuable assets. However, enforcement can be complicated by the niche market for certain IPs, which may limit buyers and affect recovery value.

Despite the opportunities, IP-backed lending in Kenya faces significant hurdles. Valuation remains a bottleneck due to the scarcity of expertise and standardized methodologies, often leading to conservative estimates that deter lenders. Additionally, many financial institutions are skeptical about accepting IP as collateral, viewing it as riskier than tangible assets like land or vehicles. To address these issues, stakeholders should advocate for capacity-building programs to train valuation experts and launch awareness campaigns to educate lenders about the potential of IP-backed financing. Policy reforms to streamline enforcement and valuation processes could further strengthen the ecosystem.

Using IP as collateral represents a transformative opportunity for Kenya’s innovators and entrepreneurs, enabling them to convert intangible assets into tangible financial resources. While challenges like valuation complexities and lender skepticism persist, the MPSR Act provides a solid foundation for growth. By investing in education, standardization, and awareness, Kenya can unlock the full potential of IP-backed lending, fostering a more inclusive financial system. As policymakers, financial institutions, and businesses collaborate to refine this framework, IP could become a cornerstone of Kenya’s innovation-driven economy, empowering creators to thrive in a competitive global market.

The writer is a legal researcher and writer