Hypothecation is a security arrangement where movable assets are offered to the lender while the borrower continues to use or hold them. In MSME lending, stock, book debts, vehicles, machinery, or equipment are often hypothecated to secure working-capital limits, term loans, or vehicle finance. The lender gets a charge, but real control depends on proper documentation, insurance, stock statements, inspections, and charge registration where applicable. For example, a cash-credit facility may be backed by hypothecation of inventory and receivables, but the borrower still sells goods and collects payments in the normal business cycle. This matters because the value of hypothecated assets can change quickly. The common mistake is to assume that hypothecation gives the same control as possession; monitoring and enforceability checks remain essential.