In general, a credit system refers to a platform where financial institutions or lenders act as intermediaries in transactions. It provides funds to various economic agents and stimulates activity. Forms of credit range from loans to lines of credit, mortgages and credit cards. This system works to improve market efficiencies and fill the gap in consumption.
There is no denying the fact that the Nigerian credit landscape has been transformed in recent years. Gone are the days that in obtaining a loan, no matter how small, one had to submit all the documents of ones house to the bank.
Many fathers had, in this way, lost their landed properties because the business their sons had poured the bank loan into had failed. The use of landed property makes lending restrictive as women, small business owners and entrepreneurs are mostly excluded from the credit worthy crowd. These set of people who are most critical to the growth and development of the economy will always not get the funding that they need because they do not have the required collateral – land.
This had hindered the growth that the economy would have enjoyed if these set of people had been given adequate and easy access to credit. A reason Nigeria lagged behind in the World Bank Ease of Doing Business ranking where the country was placed 170 out of 180 countries some years back.
Nigeria’s credit system is growing in baby steps, especially when it concerns credit infrastructure, sets of laws and institutions that facilitate access to finance.
The country ranks sixth globally on the Getting Credit sub-index of the Ease of Doing Business. The index focuses on the credit infrastructure and assesses the laws that surround credit information gathering and movable collateral.
The World Bank Ease of Doing Business Report for 2018 had placed Nigeria in the 146th position, 24 positions better than 170th the nation was ranked just a couple of years ago. According to the report, Nigeria is among the top 10 countries that improved on reforms.
The areas that Nigeria improved with reforms are in starting a business, dealing with construction permits, registering a property, paying taxes and getting credit. One major reform is allowing people borrow money from financial institutions with moveable collateral such as vehicles, jewellery, household items, machinery and even mobile phones.
Following the commencement of live operations of the National Collateral Registry (NCR), in May 2016 and the accent to the Secured Transactions in Movable Assets Act, 2017 by the Acting President Professor Yemi Osinbajo, the number of financial institutions as well as moveable assets registered has been on the increase.
Nigeria had ranked sixth in access to credit in the 2018 Ease of Doing Business report, a feat that had been achieved due to infrastructures put in place to engender increased lending. One of the parameters considered was the collateral registry as well as regulations and laws around the Nigerian credit system.
As at December 19, 2018 the number of participating financial institutions on the National Collateral Registry had increased to 628 compared to 136 that had registered as at August 24, 2017. Likewise the number of moveable assets on the registry had risen by 117.7 per cent to 57,639 from 26,471 that was recorded as at the end of 2017.
The National Collateral Registry (NCR) was established by the Central Bank of Nigeria (CBN) in collaboration with the International Finance Corporation (IFC) in pursuant of a sustainable economic inclusive growth and financial inclusion in the country. Basically, the 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, jewelleries amongst others as collateral for loans by financial institutions.
The NCR 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. The key objective 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.
It is expected to increase access to credit, increase productive capacity and generate employment while increasing assets liquidity by 100 per cent, especially short-term assets such as accounts receivables. The Registry will also cut down the cost of verifying borrowers by 35 per cent and therefore reduce the cost of credit and non-performing loans.
According to the Governor of CBN, Godwin Emefiele, the registry is expected to motivate banks to accept more moveable collateral with a 20 per cent year on year increase in banks’ acceptance of moveable assets. It is expected to cut back the land and real estate portion of the collateral base of banks to 53 per cent from 75 per cent and increasing the volume of moveable assets to 47 per cent from 27 per cent.
Figures obtained by LEADERSHIP showed that as at December 19, 2018, 21 deposit money banks, 551 microfinance banks, 13 non-bank financial institutions, four merchant banks, four development finance institutions, 34 finance companies and one non-interest bank have registered 154,827 borrowers.
Available data also showed that 100,049 borrowers who used their moveable assets to obtain loans from financial institutions had been registered in 2017 and an additional 48,177 had been registered in 2018. The high number of borrowers that secured credit in 2017 is attributable to the high participation of smallholder farmers under the CBN Anchor Borrower’s Programme (ABP).
In 2018, there was an upsurge of lending using movable assets as collateral and 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. The value of financing statements had soared from N487.28 billion to N1.209 trillion.
This is asides $1.142 billion and €6.08 million financial statements registered on the NCR as at December 19, 2018. Of the total amount, a sum of N43.618 billion, had gone to female Micro, Small and Medium Entrepreneurs (MSMEs). A breakdown of the financing showed that large businesses still had the largest chunk of financing. Large businesses had received financing to the tune of N843.168 billion, $1.138 billion and €6.057 million since the inception of the registry.
The value of financing statements by individual borrowers had soared from N34.298 billion in 2017 to N129.98 billion and $640,661.58. Medium businesses accounted for N210.998 billion and $3.134 million while the value of financing of micro businesses registered rose from N4.1.
The NCR had risen from N13.097 billion in 2017 to N19.705 billion, $117,399.98 and €22,949.36 as at December 19, 2018. Commercial banks were the biggest user of the NCR as the 22 registered banks had the largest chunk of the registered financial statements.
Deposit money banks had registered financial statements valued at N1.068 trillion, $377.389 million and €6.08 million, while the 13 non-bank financial institutions registered financial statements valued at N64.959 billion and $765 million. The four development finance institutions in the country contributed financial statements worth N52.38 billion, while the 551 microfinance institutions registered financial statements with a value of N21.674 billion.
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.
Last year, the NCR through its sensitization campaigns across the six geo-political zones of the country as well as other collaborative strategic enlightenment programmes had seen an increase in participating institutions, as 411 microfinance banks had registered on the NCR portal in 2018.
During the period under review, the number of financial institutions that registered on the National Collateral Registry portal increased by 343 per cent when compared with the 2017 figure which was 103 financial institutions. Also, during the period under review, the number of registered financial institutions that registered financing statements on the NCR portal increased by 89 per cent when compared with the 2017 figure which was 36 financial institutions.
The NCR had in 2018 executed 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.
However, the low usage of the Collateral Registry System especially by deposit money banks and reluctance of financial service providers to appreciate the benefits of Asset-Based Lending, as well as the low awareness campaign on the Secured Transaction and National Collateral Registry to the public and non-bank financial providers continue to be a challenge