Nigeria’s 37mn SMEs contribute to economic growth and job creation, but face difficulties accessing credit due to collateral requirements by the banks. SMEs are typically unable to utilize most of their movable assets as collateral due to deficiencies in the legal framework as, lenders find it risky to accept movable property as collateral.
In order to improve access to credit, the CBN launched an online collateral registry in May 2016, which allows SMEs to secure loans against non-traditional moveable assets such as machinery, livestock, and inventory.
The Registry allows lenders for a fee of N1000 to determine any prior security interests, as well as to register security interests over movable assets provided as collateral. The registry should help reduce the default risk in the sub-sector as it reduces the cost of transactions by increasing transparency. The assets held as collateral will improve the creditors liquidity and risk management due to the increased diversification of assets held.
It also incentivizes credits checks by lenders. This is because if a creditor does not register a security, subsequent creditor that has its interest registered will have priority over the first creditor whose interest was not registered.
In Nigeria the agriculture sector, which is most likely to be impacted by the registry due to the nature of the assets, has seen an increase from N469Bn in Q3 2015 to N491Bn in Q3 2016. In Ghana, the collateral registry since establishment in 2010 has provided $12 billion in total financing for the business sector using movable assets as collateral. It has also facilitated 1.3 billion in financing for the small-scale business sector.
The Registry uses the borrowers Bank Verification Numbers BVN to conduct collateral searches. There are currently only 46million customers in Nigeria with BVN and the majority of those yet to be assigned are individuals with small enterprises. These individuals are excluded from use of the collateral registry and thus access to credit.
Using moveable collateral, in a transparent system facilitated by the collateral registry can significantly increase the level of credit as it enables small entrepreneurs to leverage their movable assets to obtain credit and enhances the ability of regulators to analyze portfolio risks.
The development of moveable assets as collateral in Nigeria will help to increase credits to sectors of the economy that are lacking finance and further diversify the Nigerian economy to promote sustainable growth.