Enhancing Access to Credit

Nume Ekeghe writes on the impact of the National Collateral Registry on increasing access to credit

Nigeria is looking at achieving 90 per cent financial inclusion by 2024, although access to credit is still on the low side. Achieving financial inclusion is beyond increasing the number of individuals with bank accounts in the country. Ease of access to credit is also a critical aspect of increasing financial inclusion. 

Asides from playing a critical role in financial inclusion, ease of access to credit is also a major ingredient for the growth of any economy. However, the Nigerian financial space is still grappling with meeting the demands of consumer and small loans. With over 40 million Micro Small and Medium enterprises (MSMEs) operating within the Nigerian economy, only a few of them are able to access credit from the formal financial institutions.  

Lack of Access to Credit 

This has made many to resort to loan sharks who charge exorbitant and almost impossible interest rates. While lack of proper documentation is one of the reasons MSMEs are unable to access credit from traditional financial institutions, for many of them, lack of collateral is a major stumbling block. 

Commercial banks in the country in an effort to have a guarantee that the loan will be repaid or that they will have something to fall back on if there is a default, require that loans be backed by collateral. Many of these financial institutions ask for landed properties and fixed assets as collateral, but even for those with such, proper land titles are hard to come by. 

Johnson, an entrepreneur said his bank had asked for title to his landed property when he tried to access a facility to expand his business. “It was a difficult decision for me to take a loan, but because I wanted to expand and I saw opportunities. If the land I owned at Ifo in Ogun state had proper titles, I would have been able to access the loan.  

“I missed out on a great opportunity to expand my business because I couldn’t get anyone to lend me the money and even my bank could not come through for me,” he lamented.  

A survey had shown that only 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 said inadequate collateral is the most common challenge in granting loans.   

CBN/IFC Collaborate to Boost Credit 

This was one of the reasons the Central Bank of Nigeria (CBN) in collaboration with International Finance Corporation (IFC), a World Bank group subsidiary, expressed readiness to address the challenges around access to finance by MSMEs in the country. The collaboration, which brought forth the Nigeria Collateral Registry (NCR) in 2016 was part of a resolve to further deepen credit delivery to MSMEs and also reduce the challenges of collateral as a requirement for loans to MSMEs. 

The NRC is a notice-based registry for collaterals and an online centralized, publicly available data that allows financial service providers to register security interests in movable assets after accepting such collateral for loan. These movable assets can range from inventory to jewelry, to equipment and even vehicles.  

In May 2016, the Central Bank of Nigeria launched a modern online collateral registry with the support of the World Bank Group. The registry will allow low-income people and small-scale entrepreneurs to secure loans against movable assets such as machinery, livestock, and inventory.    

The NCR provides a platform where all collateral, moveable and immovable collateral can be registered, thereby removing the risks of some bank customers using the same collateral to access facilities in more than one bank.  

The partnership with the Central Bank of Nigeria and funded by the UK’s Department for International Development (DFID). The registry also facilitates access to g credit secured with moveable property creating and perfecting security interests and realizing security interests in movables.  

It is also aimed at providing for the establishment and operation of the collateral register and stimulate responsible lending to micro, small and medium enterprises by providing an efficient mechanism for registration of the security interests in moveable assets and realization of such interests in the event of a default.  

Boosting Access to Credit 

Registrar of the NCR, Mr. Bulus Musa whilst speaking at a town hall meeting on the sensitisation of the use of Secured Transactions in Movable Assets (STMA) Act 2017, which was organized by the Development Finance Department of the CBN, had noted that six years after its launch in 2016, the registry has gained recognition and impact and has contributed to increasing access to credit. 

Bulus noted that since 2016, about 752,000 Nigerians have registered on its portal and over N16.6 trillion in credit has been collateralized through the registry. 

“We have captured about 752,000 and credit that has been granted or collateralized currently stands at N16.6 trillion on the NCR portal. We want to use the movable assets as collateral for granting credit.  What the small-scale industries need to do is go to their bank, tell their bank that I do not have landed properties but I have a motorcycle, vehicle, jewelry, an account receivable from a reputable company, inventory and discuss with them, they will register these documents on the NCR and when it is registered on the NCR, it gives that bank the priority over these assets and they give you the amount you need for credit but you know payment is still with you”, he said.   

Musa whilst urging SMEs to approach their banks in order to benefit from the scheme, said they should notify their banks that they did not have landed properties but had other properties such as vehicles, jewelries and an account with a reputable company, including inventory.   

“They will register all these documents on the National Collateral Registry, and when it is registered on NCR, it gives that bank the priority over these assets and they give you the amount you need. But payment is still with you.” he stated. 

Operation of the NCR means the vulnerable and micro businesses as well as aspiring entrepreneurs can now have unhindered access to finance. To access credit the NCR ensures that inventory, account receivables can be collateralized, intellectual property, paintings, copyright trademark all of which are classified as movable assets.  

Availability of the collateral registry also means that women who are mostly disenfranchised in ownership of fixed assets such as landed properties can now have ease of access to credit. This is evident in data from the NCR, which shows that nearly 25 per cent of debtors on the NCR are women. 

Apart from opening up access to credit for the vulnerable, the NCR also helps to de-risk the system and stimulate growth of the economy.