Friday/ September 22, 2017/ 3:05 PM /CBN
In my maiden press briefing upon assumption of office in June 2014, I stated that one of my vision was to create a people centered Central Bank of Nigeria. One of the key strategies to achieve this was to significantly improve the credit culture in the Nigerian Banking System, by designing and introducing a robust system that effectively reduces information asymmetry, assists lenders to make good credit decisions and ultimately improve access to credit by Micro Small and Medium Enterprises (MSMEs). Top of that agenda was the establishment of a Secured Transaction and National Collateral Registry (ST&NCR).
That promise has now been fulfilled with the commencement of live operations of the National Collateral Registry (NCR), on May 25, 2016 and the accent to the Secured Transactions in Movable Assets Act, 2017 by the Acting President Professor Yemi Osinbajo on 30th May, 2017. The NCR initiative is in collaboration with the International Finance Corporation (IFC).
The NCR will unlock access to credit, which has always been a major concern to Nigerian MSMEs, particularly the micro enterprises, which are about 99% of the 37.1million MSMEs in the country, according to the National Bureau of Statistics (NBS). Financial institutions traditionally prefer fixed assets, such as land and building as collaterals for loans, while majority of the MSMEs can only provide movable assets such as inventory and equipment.
The lack of access to credit for MSMEs in Nigeria, has resulted in a huge financing gap. Records show that in 2016, loans to MSMEs by Deposit Money Banks as a percentage of their total loans and advances to the economy declined to 0.067% from 0.099% achieved the preceding year. There is no gainsaying, that the lack of access to finance has been one of the major impediments to the development of the sub-sector in Nigeria today.
The registry allows financial institutions, bank and non-bank, to register their priority interest in movable assets as collateral for loans. It is an on-line, real time notice based registry that allows borrowers to prove their creditworthiness and potential lenders to assess their ranking priority in potential claims against particular collaterals.
There is empirical evidence, that the establishment of collateral registries has increased lending to MSMEs in other jurisdictions. In China, for example, the adoption of the collateral registry resulted in 84% of SMEs securing their loans using movable assets. The use of the registry in Mexico also grew loans secured with movables by 4 times while 45% of total loans went to the agricultural sector. Similarly, In Afghanistan, with the operations of the new centralised collateral registry, 90% of loans by financial institutions were granted to SMEs. In this regard, I am hopeful that the commencement of operations of the NCR will have tremendous impact on MSME lending in Nigeria, as we strive to increase lending by banks to the sub-sector to about 10% from 0.067% in the next few years.
I am happy to note that the strategy is yielding positive results. As at 24th August 2017, one hundred and t h i r t y s i x ( 1 3 6 ) F i n a n c i a l Institutions, twenty two (22) commercial banks, one hundred and six (106) microfinance banks, one (1) non-bank financial institution, three (3) merchant banks, three (3) development finance institutions and one (1) noninterest bank have registered 16,236 financing statements for 20,684 movable assets on the NCR platform valued at N392 billion.
Diversification of lending portfolio
Decrease in loan default rate
20% Year-on-year increase in banks’ acceptance of movable assets
Boost production & create employment
Increased access to credit will increase productive capacity and generate employment
Increase in assets liquidity by 100%
Improves the liquidity of assets, especially short-term assets such as accounts receivables
Decrease in information asymmetry by 35%
The Registry will cut down the cost of verifying borrowers by 35% and therefore reduce the cost of credit and non-performing loans
Implications For Credit Risk Management
Registration of priority in security interest with consent confirms perfection of security
Online real-time registration of interest and search of encumbrance on movable assets
Defaulters can only beat the system once, except the institution does not conduct a search
Unique identifier cuts across borrower and assets
Lending to MSMEs around Movable assets are better managed with the registration of security
Interest on existing and future assets can be registered
Group guarantee can be perfected and used as collateral for group lending
Cheap cost of perfection of security interest (registrations) and confirmation of encumbrance
Robust database of security interest, as registry is accessible to both bank and non-bank
Emerging markets for the disposal of encumbered assets
Deepening of the insurance sector with a wide range of products for movable assets
Registration Of Movable Assets On The National Collateral Registry As At 24th August, 2017
The Commencement of operation of the Registry has elicited interest in the world of Movable Asset. The graphical representation of activities of the Registry is presented below:
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