Understanding Invoke and Revoke in Collateral Management with Finsire

What is invoke and revoke?

"Invoke" and "Revoke" are terms related to the control and status of an asset that is used as collateral in a lending process:

Invoke


To "invoke" in the context of lending means that the lender is exercising their legal right to take control of the collateral due to the borrower's failure to meet the loan repayment terms, such as not paying the EMIs (Equated Monthly Installments). When a borrower defaults on a loan, the lender can invoke their right to the collateral to recoup the loan amount. The process typically involves legally transferring the asset's ownership or control from the borrower to the lender. The asset might then be sold or held by the lender until the debt is recovered.

Revoke


On the flip side, to "revoke" means to reverse the claim on an asset. When the borrower fulfills all the loan repayment terms, including paying off all EMIs, the lender will "revoke" the lien or claim on the collateral. This signifies that the borrower is again in clear legal possession of the asset; it is no longer under any claim or potential seizure by the lender. The loan agreement terms regarding the collateral are nullified, and the borrower regains full access and control over their asset.

These actions are part of the risk management mechanisms in lending to protect the interests of lenders and borrowers. By agreeing to a loan and providing collateral, borrowers must adhere to the repayment plan, or they risk the lender invoking their right to the asset. Conversely, once the loan is fully repaid, the borrower's right to revoke any claims on the asset comes into effect, reinstating their ownership free from any liens or encumbrances.
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Finsire’s maker-checker system enables the revoke-invoke process to be smooth with timely notifications to lenders and borrowers.


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