Bank loans: investment banker charges FG on “Collateral Registry Act”

A Lagos-based securities and investment banking firm, Afrinvest West African Limited, has called on the Federal Government of Nigeria to speed up implementation of the Collateral Registry Act in order to improve access to credit for Micro, Small and Medium Enterprises (MSMEs).

Access to credit according to Afrinvest remains a major hindrance to the development of the private sector in Nigeria as most MSMEs either have insufficient credit history for reasonable judgment or unacceptable collateral to secure loans.

To buttress this, the Minister of Finance, whilst justifying the rationale behind establishing the Development Bank of Nigeria, noted that MSMEs contribute about 48.5 per cent to the Gross Domestic Products (GDP) of Nigeria but have access to only about 5.0per cent of lending from Deposit Money Banks (DMBs).

“In our view, the Credit Reporting Act would, to a large extent, improve credit information database available to lenders and could also make loan origination processes more efficient by bridging the information asymmetry gap between borrowers and lenders,” the investment bankers noted in a note their investors.

The “Secure Transactions in Movable Asset Act 2017” otherwise known as the “Collateral Registry Act “seeks to address this anomaly. The act enables MSMEs to register their movable assets such as motor vehicles, equipment and accounts receivable in the National Collateral Registry, which could then be used as collateral for accessing loans from bank. We believe successful implementation will go a long way in improving access to credit.

The “Credit Reporting Act 2017” also complements the “Collateral Registry Act” as it allows credit information to be shared between lenders and Credit Bureaus in addition to other establishments who offer similar credit services such as FinTechs, telecommunication companies and retailers. The Credit Bureau gathers information on the credit ratings of individuals and makes it accessible to institutions who offer credit services for the purpose of determining credit-worthiness of any applicant for credit extension.

According to analysts from the company, the commitment and vigor with which the ease of doing business objective is being pursued is quite commendable, and if the current drive to implement reforms is sustained, “we expect to see more of the hurdles which constrain operating performance of the private sector to be scaled.”

It should be remembered that one of the high points of President Buhari’s administration is the establishment of the Presidential Enabling Business Environment Council (PEBEC or the Council), a dedicated council chaired by Vice President Yemi Osinbajo, with the sole focus of removing bureaucratic constraints to doing business in Nigeria. Since the inauguration of the Council in June 2016, it has introduced a number of structural reform initiatives to make it easier to start and grow business in the country, particularly for Micro, Small and Medium Enterprises (MSMEs).