Nigeria has recorded another landmark achievement in the World Bank and International Finance Corporation (IFC) scorecard on Ease of Doing Business for 2014, with the establishment of National Collateral Registry initiated by Central Bank of Nigeria (CBN).
Twenty eight transactions worth N32 million took place on the platform, which became operational on 16th November 2016, according to Godwin Emefiele, CBN Governor who spoke at the public hearing on the bill for an Act to provide for secured transactions, registration and regulation of security interest in movable assets and for other related matters, sponsored by Ossai Nicholas Ossai (PDP-Delta).
The bill seeks to encourage financial institutions operating in Nigeria to accept movable assets as security for loans granted to Medium and Small and Micro Enterprises (MSMEs) in Nigeria.
Emefiele who was represented by Johnson Akinkunmi, CBN’s acting Director Legal Service, expressed optimism that the passage of the bill will help to formalise over 37 million MSMEs across the country out of which only 2 million have so far been formalised.
The CBN Governor who stressed the need to tap resource locked up in assets, assured that the enactment of the legislative framework, will remove various impeding access to fund for MSMEs in Nigeria.
“Medium and Small Micro Enterprises is the bedrock of development, they employ the greatest number of employable citizens and most of the growth in the GDP is traceable to MSMEs.
“If you look at the value and the volume of the capital stock of most MSMEs in terms of the plants, equipment and machineries and their receivables, you will find out that it constitute a very significant amount of all accounts but yet in modern finance, these assets do not qualify as collateral. They can’t be relied upon to obtain credit from the regular financial institutions.
“What we are doing is, how we can use these receivables to at least obviate the problems and challenges posed by collateral security generally,” Emefiele said.
While applauding the initiative, Ubong Awah, Senior Financial Sector Specialist for World Bank Group Finance and Markets, disclosed that Nigeria moved up by 44 steps in the 2014 ranking sequel to the establishment of the Registry.
Awah who spoke with BusinessDay said: “in the Ease of Doing Business in 2014, in getting credit, we moved 44 spaces. The only reform we did in 2016 that was acknowledged was that of the Collaterals Registry that was established.
“Like I mentioned, there was a time we had the bill on Secured Transaction in Movable Asset which was not passed, but we will be moving further more because now we have a regulatory framework to improve our ranking. But beyond that, it will also stimulate access,” he assured.
Awah expressed optimism that Nigeria will attract three additional point when the World Bank comes back to Nigeria in May 2017 to conduct monetary evaluation on Ease of Doing Business in the country.
Speaking earlier, Ossai who sponsored the bill, explained that the bill seeks to enhance financial inclusion in Nigeria; stimulate responsible lending to micro, small and medium enterprises; facilitate access to credit secured with movable assets; facilitate perfection of security interests in movable assets; establish a collateral Registry and provide for its operations.
He noted that in 2007, over 385,000 registrations with a transaction value at $3.5 trillion, which benefited 60% MSMEs were carried out in China following the enactment of the Property law established in China by the People’s Bank of China and establishment of the National Registry for movable assets.
According to him, “with the support of Bank of Ghana and International Finance Corporation, Ghana has enacted into law the ‘Borrower and Lenders Act of 2008’ which gave cause to the establishment of movable collateral Registry which has recorded over 20,000 loan transactions and with movable assets as collateral since March 2010. The total financing so secured amounted to $800 million, with 64% of the transactions favouring MSMES.”
On her part, Funmi Ilamah, Reform Leader, Presidential Enabling Business Environment Council (PEBEC) who applauded the legislative framework on cured transactions in movable assets bill, expressed optimism that the passage of the bill into law will boost Nigeria’s rating on Ease of Doing Business.
She explained that the bill was one of the seven bills identified to help achieve the FSS 2020, adding that the enactment of the legislative framework will boost wealth and employment generation through the MSMEs which engages 75% of the working class.
“The World Bank Doing Business Rankings, which is a key performance indicators of Nigeria’s ease of doing business, has ‘access to credit’ as one of its indices. It has been recommended that for the improvement of Nigeria’s ranking in his indicator, a modern collateral registry for movables needs to be promptly established.
“The absence of any legal and regulatory framework to regulate non-land (movable) assets has hindered the same from being mobilised and leveraged as acceptable collateral in re credit markets.
“Reforming the framework, through legislations, for movable, non-possessory collateral lending in Nigeria will enable businesses, especially MSMEs, to leverage their assets into capital for investment and growth. This will inevitably lead to an increase in the availability of credit and ultimately reduce its costs,” she said.
Speaking earlier, Speaker Yakubu Dogara noted that establishing the legal framework, through legislation, for movable, non-possessory collateral lending in Nigeria will enable businesses, especially Medium and Small scale enterprises to leverage their assets into capital for investment and growth.
“This is bound to increase the availability of credit and reduce the cost of credit. It will unleash the real economic potentials of this nation.
“The bill, if passed into law, will align Nigeria’s secured transactions regime with international best practices since the existence of a modern collateral registry for movables is one of the indices indicated for better doing business ranking. This contemplated regulatory framework legislation will also delineate rights, responsibilities and duties of parties to credit transactions in and out of bankruptcy,” Dogara said.
According to him, the modern online Collateral Registry launched by the apex bank with the support of the World Bank, allows low-income people and small-scale entrepreneurs to secure loans against movable assets such as machinery, livestock and inventory.
Source: <Business Day>