MARK ITSIBOR reviews recent efforts by the authorities to facilitate the perfection of security interest in movable assets for individuals and MSMEs, with a focus on increasing access to finance for small businesses in Nigeria
According to a recent survey, there are over 17.5 million Micro Small and Medium Enterprises (MSMEs) operating in Nigeria. They account for a substantial portion of the nation’s economy. Unfortunately indeed, the growth and survival of the enterprises are faced by financing bottlenecks and legal quagmires, with an estimated financing gap in excess of N48 trillion, despite their significant share in the nation’s Gross Domestic Product (GDP).
A World Bank report suggests that only a paltry 31 per cent of MSMEs in Nigeria currently have a loan with a bank or a microfinance institution, and that personal savings and business income are the most important sources of capital for financing businesses. At the same time, 82 per cent of financial institutions surveyed in Nigeria said inadequate collateral is the most common challenge in granting loans, a problem that has been solved in neighbouring African countries with lesser economic potentials.
In smaller countries, such as Ghana and Liberia, collateral registries established with the support of the World Bank Group have already proven to have a catalytic effect on the economies. Elsa Rodriguez of the Bank Group’s project on ensuring access to finance for small businesses says in Ghana, the collateral registry has facilitated $1.3 billion in financing for the small-scale business sector since it was established in 2010, and $12 billion in total financing for the business sector using movable assets as collateral.
Has Nigeria learnt to take the right steps? Recent efforts by the authorities to facilitate the perfection of security interest in movable assets for individuals and small business, with a focus on increasing access to finance for the enterprises suggest so. There is a palpable excitement that a registry is now also in place in Nigeria. A modern online collateral registry that was launched in May 2016 by the Central Bank of Nigeria with the support of the World Bank Group, has not only improve access to finance for MSMEs and more broadly the financial inclusion agenda in Nigeria, it is also helping commercial banks to increase operational profit in the country.
MSMEs in Nigeria employ about 84 per cent of Nigeria’s workforce; accounting for 7 per cent of its export. Yet, the small businesses continue to face structural drawbacks. Nigeria remains the largest economy in Sub-Saharan Africa and a focus country for the Universal Financial Access by 2020 initiative. According to Governor of the Central Bank of Nigeria, Godwin Emefiele, poor funding directly translates to weaker economic performance. Experience has shown that the Nigerian economy can indeed, perform better to manifest in inclusive growth.
Already, lending banks operating in Nigeria have registered interest on movable assets worth N1.23 trillion, $1.14 billion and €6.08 million through 41,408 financing statements. For the CBN Governor, that achievement underscores the potential of movable assets as collateral to enhance access to credit and, hence, our resolve to drive its effective implementation.
Read Also:
There is lack of acceptable collateral and the inherent information asymmetries in Nigeria. MSMEs are typically deemed risk-laden, plagued with high mortality rate, and often lacking adequate collaterals acceptable for conventional credit. That points to the view of Mr. Emefiele who remarked that the estimated $158 billion or N48.3 trillion financing gap which characterises MSMEs in Nigeria reflects the risk-driven apathy of financial intermediaries to MSME lending.
While a little achievement has been recorded in the use of the business support initiative, the fact is that most of the supposed beneficiaries are either totally not aware of its existence or ignorant of its operations.
That explains why the CBN in collaboration with the National Collateral Registry of Nigeria the first national workshop for judicial officers on secured transactions in movable asset financing law in Nigeria tagged: “leveraging movable assets for credit delivery in Nigeria: legal and regulatory framework was organized for law officers in Abuja. The workshop was to sensitize judicial officers in the enforcement of the provisions of the STMA Act, with a focus on improving access to finance particularly for MSMEs. The workshop which took place between February 11 and 12, 2019 was for the business community to take full advantage of the potentials of the movable assets initiative.
The Collateral Registry, which operationalizes Part III of the Central Bank’s regulations on Registration of Security Interests in Movable Property by Banks and other Financial Institutions (Regulations No, 1, 2015), is a web-based system that allows lenders to determine any prior security interests, as well as to register their security interests over movable assets provided as collateral.
The Collateral Registry facilitates the use of movable / personal assets as collateral that remain in possession or control of the borrowers and thereby improves access to secured finance because: movable assets/personal property often account for most of the capital stock of private firms and comprise an especially large share MSMEs; movable assets are the main type of collateral that MSMEs, especially those in developing countries, can encumber to obtain financing; and given the opportunities in agri-business among others, the Collateral Registry regime allows Nigerian farmers and entrepreneurs to unlock significant sources of capital with assets that would otherwise not be looked at by lenders as potential collateral.
The Central Bank says it remains committed to the sustainable economic growth of Nigeria and shall continue to support the development of necessary financial sector infrastructure.
The Collateral Registry system is a centralized web-based software designed and developed based on international standards that contains information relating to security interests in movable property included in financing statements submitted by registered users.
The collateral registry software automatically assigns a sequential registration number, date and time of registration to each financing statement accepted for registration The priority among competing security interests is established according to the time of registration.
The web-based nature of the system offers remote access from the comfort of your location even beyond normal business hours without visiting the registry office. It reduces and frees officials of the registry operations from paper burdens, manual reviews, searches and storage costs.
A Collateral Registry is established for the purposes of receiving, storing and making available to the public information submitted by users in the form of financing statements relating to security interests. The software saves data submitted by registered users to a database and makes it available to the searchers who use the appropriate search parameter.
