THE WAREHOUSE RECEIPT SYSTEM BILL 2018

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Background

The agriculture sector in Kenya is dominated by smallholder farmers in rural areas who face challenges such as poor access to credit and efficient marketing and distribution systems. Consequently, farmers incur large post-harvest losses mainly caused by poor storage practices. An efficient, well-regulated national warehouse receipt system will address some of these challenges by streamlining supply-chain logistics, reducing post-harvest wastage, and improving access to credit for farmers.

The Warehouse Receipt System  

The Warehouse Receipt System Bill 2018 (the Bill) is at the first reading stage at the National Assembly. The Bill proposes to establish a system whereby warehouse receipts (Receipts) will be issued by licensed warehouses to depositors upon delivery of agricultural commodities. The Receipts will constitute a document of title to the commodities held in the warehouse, and may be produced to a lender as collateral for a loan, or be transferred to another party by way of sale.
 
Key provisions

The Central Registry The Bill establishes a central registry to be operated by the Warehouse Receipt System Council also established under the Bill (the Council). The central registry will facilitate confirmation of validity of the Receipts and due negotiation thereof.
Licensed warehouse The Bill provides for the licensing of warehouse operators and warehouses, and for inspection of warehouses and the stored commodities by the Council. Stored commodities will be required to meet set standards and be weighed with certified equipment.
Warehouse receipts Receipts may be issued in hard or electronic form. A Receipt will be a document of title and will include a statement whether the goods will be delivered to the bearer, to a specified person, or his order for negotiable receipt.

The Bill also provides for negotiation of Receipts by endorsement and delivery, and provides for the rights of transferors and transferees upon negotiation.

Benefits if enacted Value of agricultural commodities as security will be enhanced in the following ways:

a) quality and quantity of the stored commodities will be assured by standards determined by Kenya Bureau of Standards, and use of certified graders and equipment;
b) Receipt as a legal title document will assure a creditor of the possibility and ease of realisation of the security;
c) Receipt will facilitate easy documentation and registration of a security transaction; and
d) the central registry will make it possible to confirm the validity of the Receipt, and the transactions carried out thereon.  

Benefits that will accrue to agricultural market participants in general include:

a) increased access to finance;
b) improved transparency and stability of market prices of agricultural commodities; 
c) increased profitability in the trade of agricultural commodities; and
d) formalisation of transactions in the agribusiness sector.

 

Establishment of the warehouse receipt system will pave the way for a national commodity exchange, making it possible to trade in agricultural commodities with minimal need for intermediaries. This will further improve profitability, liquidity and price stability in the trade of agricultural commodities.

For further assistance please contact our Banking and Finance partners, Kamami Christine MichiraCornelius Kigera, and Dominic Indokhomi, or your relationship partner at Bowmans Kenya.