How Collateral Registry opened N1.2trn credit to small businesses

For decades, access to credit was regarded as the most important challenge confronting small businesses in Nigeria. Many of them struggle to gain access to the capital they need to grow and prosper since they lack traditional collateral such as land and buildings.  A survey jointly conducted by National Bureau of Statistics (NBS) and the Small and Medium Enterprises Development Agency (SMEDAN), there is an estimated 37 million micro, small, and medium-sized enterprises (MSMEs) in Nigeria and their contribution to economic growth and job creation is quite significant.

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According to a survey, only 31 per cent of MSMEs in Nigeria currently have a loan with a bank or a microfinance institution, and personal savings and business income are the most important sources of capital for financing businesses. At the same time, 82 per cent of financial institutions surveyed said inadequate collateral is the most common challenge in granting loans. Although how to resolve the logjam in view of the enormous potential of small businesses in terms of growth and job creation was a subject of intense national debate, it remained an enigma until Central Bank of Nigeria (CBN) decided on the creation of a National Collateral Registry.

In pursuant of its mandate on sustainable economic inclusive growth and financial inclusion, CBN in collaboration with the International Finance Corporation (IFC) in May 2016, launched a modern online collateral registry. The registry will allow low-income people and small-scale entrepreneurs to secure loans against movable assets such as machinery, livestock, and inventory. The National Collateral Registry (NCR), is a financial infrastructure that seeks to deepen credit delivery to Micro Small and Medium Enterprises (MSMEs) through enhanced acceptability of movable assets (equipment, machinery, vehicles, ‘keke – NAPEP’, crops, livestock, account receivables, inventories, jewelries and so on) as collateral for loans by financial institutions. It is a notice-based registry where security interests in moveable assets are registered after being used as collateral to obtain facilities from financial institutions. It allows lenders to assess their priority interest in potential claims against particular collateral.

Objectives of the registry

NCR, a web-based system that allows lenders to determine any prior security interests, as well as to register their security interests over movable assets provided as collateral has the goal of enhancing financial inclusion, stimulate responsible lending to MSMEs, facilitate access to credit secured with movable assets, perfect security interests in movable assets, facilitate realisation of security interests in movable assets, and to establish a collateral registry and provide for its operations. The key deliverable of the registry is to promote the acceptance of movable asset as collaterals for loans and contribute to economic growth and development of the country.

The Collateral Registry facilitates the use of movable/personal assets as collateral that remain in possession or control of the borrowers and thereby improves access to secured finance because: movable assets/personal property often account for most of the capital stock of private firms and comprise an especially large share MSMEs; are the main type of collateral that MSMEs, especially those in developing countries, can encumber to obtain financing; and given the opportunities in agri-business among others, the Collateral Registry regime allows Nigerian farmers and entrepreneurs to unlock significant sources of capital with assets that would otherwise not be looked at by lenders as potential collateral.

Advantages

The Collateral Registry system is a centralized web-based software designed and developed based on international standards that contain information relating to security interests in movable property included in financing statements submitted by registered users. Its software automatically assigns a sequential registration number, date and time of registration to each financing statement accepted for registration. The priority among competing for security interests is established according to the time of registration. Also, the web-based nature of the system offers remote access from any location even beyond normal business hours without visiting the registry office. It reduces and frees officials of the registry operations from paper burdens, manual reviews, searches and storage costs.

The registry was established for the purposes of receiving, storing and making available to the public information submitted by users in the form of financing statements relating to security interests. The software saves data submitted by registered users to a database and makes it available to the searchers who use the appropriate search parameter.

In 2018, the National Collateral Registry (NCR) Solution was able to move to the cloud which enabled the website to be more stable making productive performance by enhancing its accessibility by financial institutions and general public with ease. There was no downtime/network interruption recorded the whole of the year.

The journey so far: Number of Searches

A cumulative of 16,349 searches was conducted by both financial institutions and the public on the NCR portal. There was upsurge of searches conducted by financial institutions in 2018 due to their increased participation in the movable asset lending regime and continuous sensitization to the users to ensure they conduct searches to determine the level of encumbrances before undertaking any financial transaction.

During the year under review, there was an upsurge of lending using movable assets as collateral. This is attributable to the increase in the number of microfinance banks on the NCR portal, as well as increased participation of deposit money banks and non-bank financial institutions. Out of the total amount of N1.2 trillion, a sum of N43.6 billion went to female MSME owners.

Lending

The Registry has assisted over 154,000 Micro, Small and Medium Enterprises (MSMEs) to access N1.2 trillion loans from 628 financial institutions. According to a report made available to Nigerian Tribune by the CBN, the number of participating financial institutions in the NCR rose from 103 in 2017 to 628 in December. Participating Deposit Money Banks (DMBs) in 2017 was a dismal three in 2017 to 21 by the end of 2018 while microfinance banks rose from 96 to 551 during the period under review. Development finance institution rose to four from one; merchant banks rose from one to four; finance companies rose from two to 13 while a non-interest bank joined the registry.

Of the beneficiaries, 154,827 MSMEs used their movable assets to obtain loans from various financial institutions through the NCR by December 19, 2018, from 100,049 when it started in 2017, indicating a 54 per cent increase. And of the beneficiaries, 22,251 of the MSMEs were female entrepreneurs.

A further breakdown showed that 146,777 of the borrowers were individuals, 3,416 were micro businesses, 2,169 were medium businesses, 1,777 were small businesses and 687 were large businesses.

Lending under the NCR rose by 146 percent per cent to N1.2 trillion in 2018 from N487 million in 2017. The upsurge in lending activities, according to the CBN was due to the increase in the number of microfinance banks on the NCR portal as well as increased participation of deposit money banks and non-bank financial institutions.

DMBs led in lending with N1.07 trillion, followed by Non-Bank Financial Institutions with N340.3 billion, Development Finance Institutions with N52 billion, MfBs.

Strategic Engagements

According to information made available by the NCR, during 2018, the it office executed a number strategic engagements that were targeted at sensitizing the participants on the legal implications of the Secured Transactions in Moveable Assets (STMA) Act, 2017; dynamics of secured transactions in movable assets; operations of the National Collateral Registry portal as well as to improve usage of the NCR portal by financial service providers.

How to Access the Registry

Any person can access the Collateral Registry System by entering the URL address www.ncr.gov.ng in a web browser but only registered users are able to enter and save data to the database. Unlike a Registered Client, a Public Client needs no registration in the system in order to perform search in the registry. A Registered Client has to be a Legal Financial institution regulated by the CBN.

Postpaid Client Account Access

Postpaid Client Account users are financial institutions regulated by the CBN who hold a clearing account with the central bank. Such financial institutions should open a client account with the Collateral Registry by clicking the Create New Account Tab on the Home Page to register and request to be setup on a Postpaid Account. This allows the institution through its authorized users to login to the application, register notices of financing statement and request for search certificates without making any advanced payments. The transaction fees are automatically deducted from the financial institutions credit account with the Central Bank of Nigeria (CBN) and a statement is generated for the client at the end of each month, detailing all completed chargeable transactions.

How to Search as Public User

Before you search the registry for registrations, you must first know how many searches you will make. Then pay the fees through Interswitch WebPay and use the payment security code issued to you to search for Registrations and then click the Search Tab on the Home page to go to the Search page and perform search.

How to make Payment

Fees are charged during initial financing statement registrations, amendments, renewals and search. Registered clients holding Postpaid accounts with the Central Bank shall pay for transactions through settlement payment. To pay for a transaction in the collateral registry as Public client, first determine the total amount of fees for the service you want from the Fees option under the Help menu. Then pay that amount through either Interswitch WebPay. On the Home page click the Search Menu tab to redirect you to the main Search page where you will find the Payment menu. For WebPay click on the Make an Online Payment and follow the steps to continue. If the payment transaction is successful, the client will be issued with a payment security code which will be used to search for Registrations.