The signing into law of the bill for using movable assets as collateral, popularly known as Collateral Registry Act has been described as moves in the right direction, by financial experts.
The law, which came on the realization that small business, estimated to have employed over 60 million Nigerians and accounted for 48 per cent of the nation’s Gross Domestic Product (GDP) are stifled by funding, would now allow them borrow from banks with their movable items rather than fixed assets.
The President and Chairman of Council of the Chartered Institute of Bankers of Nigeria (CIBN), Prof. Segun Ajibola, said the development reduced uncertainty, especially for banks that are wary of the level of risks associated with such businesses in less-than-encouraging business environment in the country.
The don, in his address at the knowledge event organised by the institute’s subsidiary- CIBN Centre for Financial Studies with the theme: “Collateral Registry Act: Pros and Cons for the Banking Industry and other Stakeholders,” reiterated that the Act was timely against the backdrop of different propositions on the potentials it holds for Micro, Small and Medium Enterprises (MSMEs) and the economy.
He noted that before now, the small operating scale of most SMEs does not afford them the opportunity to meet most of the collateral requirements, particularly fixed assets such as real estate, for accessing loans in commercial banks.
“By introducing this Act, Nigeria is joining the league of countries like India, where the initiation of the SME Act in 2006 led to the consistent growth of SME practice. A 2015 report by the International Finance Corporation (IFC) noted that Indian MSMEs grew by 11 per cent each year consecutively between 2007 and 2011 and by 17 per cent between 2014 and 2015.
“We appeal to all the stakeholders to remain honest, faithful, ethical and professional in the use of the Registry. As you are well aware, the enactment of the Act is to contribute to the ease of doing business in Nigeria and not intended to be used by any party to the disadvantage of the others,” he said.
The keynote speaker and Head/Registrar, National Collateral Registry, Central Bank of Nigeria, Mainasara Muhammad, said the Act, which contains nine parts with 62 sections, is a deserved commendation to CBN Governor and the collaboration with International Finance Corporation/World Bank.
Muhammad said that with the second financial statement since its commencement in May 2016 due November, the total number of financing statement registered on the portal is 210 financial institutions, while 17631 assets valued at N398 billion and $20 million, making it one of the fastest growing registry in the Sub-Saharan Africa.
“There are about 37 million micro, small, and medium-size enterprises in Nigeria and with significant contribution to economic growth and job creation.
“Many of these businesses have little or no access to the capital they require to grow and prosper since they lack traditional collateral such as land and buildings. Only 31% 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.
“The inability to access credit was largely due to a lack of adequate information and a mismatch between assets owned by the MSMEs and collateral required by the financial institutions. This has however caused a huge finance gap of about $62 billion for the MSMEs and it could get worse.
“This is why the CBN has developed the Collateral Registry with the support of IFC and strengthened the Credit Reporting System to improve access to MSME Financing in Nigeria,” he said.