Collateral Registry as support infrastructure for microfinancing

Economic exclusion remains a major challenge to Nigeria’s socioeconomic development. Undoubtedly, those who are structured to the exteriors of the economy or who operate outside the financial system, cannot maximally benefit from measures taken to enhance their well-being. The reason is simple: the world has become intensely financial and not much happens without finance in the forefront.

Besides, financing has changed from what it used to be. For instance, it is now optional for people to visit their bank. Most banking services can be remotely accessed from anywhere in the world. Those who have no bank accounts or have no access to the infrastructure necessary to handle such remote banking activities will suffer financial and economic inequity. Fortunately, this is one fact that the Nigeria government has taken to heart and is currently pursuing with vigour.

Over the past several decades, but particularly from 1977, when the rural banking programme was launched, the pursuit of financial and, by extension, economic inclusion has received serious attention in Nigeria. That programme had its roots in the desire of the Nigerian government of the time to give the citizens a fair opportunity to participate in their economic affairs.

It was part of the global programme of domesticating the economy and giving Nigerians control of the commanding heights of their economy. The flagship project of this programme was the Indigenization Programme. This programme was successful in transferring the ownership and control of major foreign companies in Nigeria to some Nigerians. Although criticised for excluding those sections of the country that just came out of the Civil War, in particular the south-east, whose citizens had neither the contacts nor the finance to participate in the exercise, it marked a major shift in capital ownership in Nigeria.

Under the rural banking programme, commercial banks in the country were obliged to establish functional branches in the rural areas. The target clients were the rural farmers and petty traders in the villages who saved their money by putting them in bottles and burying them in secrete places; those who save by hiding their funds under pillows because they had no access to any kind of banking services. The programme was intended to offer them both credit and savings facilities and to help in boosting the rural economy.

To show its seriousness, government offered a number of incentives in the areas of tax and the period needed to write off certain costs relating to rural branches. The programme took off very well as bank branches began to spring up in the hitherto unbanked local communities.

Unfortunately, due to a combination of factors, some of them are still key players in our economic setback. They include lack of basic infrastructure like telephones, insecurity, and epileptic power supply. Others were lack of skilled workers to man the rural branches and inexperience on the part of banks in dealing with rural financing and the entailed micro nature of the transactions.

The introduction, in 2005, of a national microfinance framework, marked a watershed in Nigeria’s financial and economic inclusion efforts. However, continuous review adjustment and improvement is fundamental to sustainable.

Moreover, the banks were required to lend a certain proportion of the deposits they mobilize from a locality to the businesses in that community. The banks could not find adequate vent for the deposits they mobilized from the rural areas as most of the business entities around were micro, unregistered and essentially unbankable.

The result was that banks took deposits from the poor in the local communities and passed them to the more endowed urban customers. Banks began to worry about the poor bottom lines of their rural branches, and turned them literally to observatories they for reasons other than commercial banking.

But Nigeria never gave up on the idea of banking the rural communities and in particular, the economically active poor. The strategies adopted might have changed but the objective remains the same. It has now taken new forms and manifested in the establishment of new financial institutions and instruments, geared towards financial liberalization and inclusion. The introduction, in 2005, of the framework for a national microfinance practice, marked a watershed in our financial and economic inclusion efforts. However, continuous review adjustment and improvement is fundamental to sustainable

Other efforts in that direction include the introduction of agency banking and mobile money strategies. On the financing part, the Central Bank and the Bank of Industry have led the way in providing all kinds of financing packages. For example, the SMEIS, Anchor Borrowers’ Fund for farmers, funds for Nollywood fashion designers. The financing space is awash with cash.
To what extent have these funding opportunities helped the large SME sector in the country? How much have we achieved in our financial inclusion project? If we consider the Rural Banking Scheme as the beginning of our financial inclusion project, we are looking at a project that has been on for forty years.

There is no doubt that some progress has been made but we are looking at a programme on moving at snail speed. An honest opinion will be that there is room for improvement. However that room is a bit too large. Clearly, the fact that 39.7 percent of Nigeria’s adult population is still excluded financially after 40 years of effort says something negative about our financial inclusion efforts.

Why are we making very slow progress? The answer is not farfetched. The country’s financial infrastructure is very poor. Without doubt we need to work more seriously on a number of things including the power sector, the charges on bank services and the deployment of equipment. Perhaps a new form of rural baking programme focusing on POS and ATM machines deployment and use might be considered and if necessary compelled.

In addition, government in 2017 introduced the Collateral Registry Law that has made it possible for lenders to advance credit to owners of chattels, which were hitherto of no financial value to their owners. Dead Capital as they are often termed have therefore been resurrected and become useful again. Nigeria’s microfinance industry can do a lot if the law is taken serious and diligently applied.

Emeka Osuji