CBN’s Collateral Registry: MSMEs may get increased access to finance

Although the number of registered borrowers has steadily increased to 29,285,471 as of October 2015, growing from 78,189 in December 2010 to 18,640,000 in June 2012, according to the Central Bank of Nigeria’s (CBN) Deputy Director, Banking Supervision, Steven Nwadiuko, there is still an urgent need to increase access to finance to businesses in Nigeria, especially the smaller ones.

It is unclear how many of Nigeria’s 37 million Micro, Small, and Medium-sized Enterprises (MSMEs) have access to finance to grow or expand their businesses, but the fact remains that they “play an important role in the country’s economy,” as the World Bank puts it, but “accessing loans to grow their business is difficult” for them and they “generally lack traditional collateral that banks require for loans – such as land and buildings.”

However, a new online registry launched in May 2016, may serve to bridge the gap between the MSMEs and the financial sector. Launched by the CBN with the support of the World Bank Group and the UK’s Department for International Development (DFID), the collateral registry will allow MSMEs to secure loans against assets such as machinery, livestock, and inventory.

It will be recalled that in August 2013, the CBN launched an MSME Development Fund with N220 billion as seed capital, 60 per cent of which was targeted at women, to provide financial services to women “in view of their peculiar financial exclusion circumstance” and 10 per cent structured to go to start-up business owners, among others, in the view to promote and deepen access to finance, provide cheap wholesale funds and build capacity for stakeholders, etc.

With the new registry from the CBN, it is expected that the level of loan that goes into the MSME sector will increase substantially as financing without using immovable collateral such as land as bonds is now acceptable.

Prior to the launch, the CBN’s deputy director, Development Finance Department, Mainasara Mohammed, explained that collateral registry would be a databank where moveable assets such as cars, inventories, and equipment, as well as intellectual properties are registered for the purpose of using them as collateral to obtain facilities from financial institutions.

The CBN, in the 2014 Collateral Registry Regulations issued by its governor, Godwin Emefiele, explained that the regulations is aimed at stimulating responsible lending to the MSMEs “by providing a mechanism for efficient registration of security interests in movable property and realisation of such interests in the event of a default.”

It also noted that the registry will be maintained and operated by the apex bank.