Rising from the recent bankers’ committee meeting, the chief executives of banks in Nigeria, having appraised the development in the economy, especially the 0.55 Growth in Gross Domestic Product, urged caution. It also offered a piece of advice for both government and the private sector on how to sustain what it described as fragile growth.
The Managing Director/Chief Executive Officer of Union Bank, Emeka Emuwa, speaking on behalf of the committee said, his colleagues noted that now is the time for small businesses to put themselves in the position to access funding, which will enable them contribute to employment generation.
Emuwa said: “Small businesses must take advantage of the collateral registry to put themselves in poll positions for funding by the financial institutions.”
The charge of the bankers committee is not at all out of place. The success of an entrepreneur’s search for credit facility depends highly on his ability to reduce risk perception of fund providers to small firms.
Three variables (financial management information skills, the prior banking relationships and the level and quality of collateral) constitute risk reducing factors, which an owner-manager must package properly in a feasibility study to put his case for loan applications better.
Therefore, the call by the bankers committee brings to the fore, once again the critical role of the National Collateral Registry of Nigeria; an initiative of the Central Bank of Nigeria (with support from IFC) to improve access to finance particularly for Micro, Small and Medium Enterprises (MSMEs).
On 30th May, 2017, the Acting President of Nigeria, Professor Yemi Osinbajo, assented to the Bill on Secured Transactions in Movable Assets (Collateral Registry Act). Although the Central Bank of Nigeria (CBN) had previously issued guidelines on the establishment of the collateral registry, hitherto, there had not been any legislation on the subject. This act codifies CBN’s earlier guidelines, and retains the same registry.
The act aims to provide for the registration and regulation of security interests in movable assets by enhancing financial inclusion in Nigeria, stimulating responsible lending to MSMEs and facilitating access to credit secured with movable assets.
Most MSMEs hardly make it through their first five years of existence because of insufficient capital. Funds are necessary for the smooth running of any business. MSMEs are unable to access loans from banks because of the stringent collateral policies and the commercial banks preference for land as collateral. Usually, such land or landed property must have a Certificate of Occupancy and the Consent of the Governor of the State where the land is situated must first be obtained. These stringent requirements hinder MSMEs’ access to credit.
The Collateral Registry Act is innovative in resolving such funding problems as account receivables (the right to receive value arising from an obligation owed by an account debtor to the borrower including book debts, but excluding negotiable instruments) can be collaterised.
The Collateral Registry, which operationalises Part III of the Central Bank of Nigeria’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 of 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 Collateral Registry system is a centralised web-based software designed and developed based on international standards that contain information relating to security interests in movable property included in financing statements submitted by registered users.
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.
Assets that can be used as ‘movable property’ collateral
Movable collateral under the Collateral Registry Regulation includes equipment, inventory, accounts receivable, household items, bank accounts, farm products, motor vehicles, boats, planes, consumer goods, trees that have been severed and oil, gas or minerals that have been extracted etc.
Can you use someone else’s e.g. family or friend’s property to apply to a debtor?
You may only give a security interest in property that you actually own. However, someone else may grant a security interest in their assets to secure your loan but it must be with their consent. Such a person must execute a security agreement as if he/she is the one obtaining the loan. For the purposes of the Collateral Registry Regulation, that person will be the debtor.
Can individuals pull assets together and apply for a loan?
Yes, individuals may apply for a loan as a group. They may use their assets that they own individually or jointly as collateral for the loan.
How to access the registry
Any person can access the Collateral Registry system by entering the URL address www.ncr.gov.ng in a web browser but only registered users are able to enter and save data to the database. Unlike a Registered Client, a Public Client needs no registration in the system in order to perform search in the registry. A Registered Client has to be a Legal Financial institution regulated by the CBN.
Experts have opined that, the registry will improve secured credit transactions and financing for the MSMEs. This is because their inventory, equipment and other movable assets can be collaterised to assure them of access to credit to expand their business and also for the smooth running of the business.
This will help achieve the broad objectives set out in the National Policy on MSMEs which is to broaden the scope of acceptable collateral for MSME lending.
MSMEs are the drivers of the economy and lack of access to finance impairs their positive impact on the economy. The focus had been too long on land as a secured asset and this registry is a welcome development.
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