• Wednesday, February 21, 2024
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CBN, IFC plan collateral registry for SME explosion in December


In another move to enhance financial inclusion and improve the flow of credit to the Micro Small and Medium Enterprise (MSME) sector, the Central Bank of Nigeria (CBN), in collaboration with the International Finance Corporation (IFC), is set to kick off the collateral registry for moveable assets in December.

The MSME sector in Nigeria accounts for about 90 million jobs in the economy. However, less than 15 percent of MSMEs have access to finance. Lack of access to financing, most notably working-capital financing, has led to the crimping of sector growth and a loss in latent innovation, creativity and productivity. This is in spite of the abundant amount of credit made available via government and CBN schemes.

Following its raging success in other economies, a collateral registry for moveable assets is seen as the missing piece needed for the MSME sector in Nigeria to take off.

The launch of a collateral registry in Ghana by the Bank of Ghana saw the MSME sector gain access to $3.5 billion worth of financing. To date, 224,000 people have benefitted from the project.

In China, where moveable asset and collateral registry was developed as a way to boost the economy after the Asian economic crises, a total of $3.5 trillion was disbursed to the MSME sector in five years.

Also, in Vietnam, a total of 54,000 businesses have benefitted from $600 million financing since its inception in 2012.

“With the launch of the collateral registry and the use of moveable assets, the Nigerian MSME will explode,” said Ubong Awah, the country project manager of the IFC-led initiative, in a September 5 interview with BusinessDay.

A moveable asset, as opposed to a fixed asset, is an asset that is movable or portable. It includes possessions like vehicles, power generators, and personal belongings such as jewellery and mobile devices. It also refers to less-tangible assets like shares of stock and accounts receivable.

“Movable assets often account for most of the capital stock of micro, small, and medium-size enterprises. As a result, movable assets are the main type of collateral that MSMEs, especially those in developing countries, can pledge in order to obtain bank financing,” said Maria Peria, research manager of finance and private sector development at the World Bank.

However, the continued insistence of lending institutions on fixed assets has led to the exclusion of the MSME sector from formal financing, many of which are embedded in the informal sector.

For the use of moveable assets to be effective and risk-free, a collateral registry is needed. A collateral registry is a single central electronic database where all moveable assets pledged as collateral are registered in order to avoid the re-pledging of those assets for which there are already existing liens.

In Nigeria, the N200 billion SMEs Credit Guarantee Scheme (SMECGS) which was established to encourage banks to lend to productive sectors of the economy achieved less than 20 percent utilisation, thereby defeating its purpose. According to an earlier EFInA study, only about 12 percent of MSMEs in the country have been able to borrow from the bank, while more than 80 percent have had to borrow from friends and family.

“A lot of these MSMEs are in possession of ‘dead assets’. With this project, we are trying to make those dead assets useful, while providing them with financing,” Awah said.

Dead assets refer to valuables that can be monetised in the loan procurement process.

“In addition, this project will lead to the deepening of the insurance sector, because all potential moveable assets will have to be insured before being registered in the collateral registry,” he further said.

Other key measures to further institute informal sector lending will include enacting a Lending Act by the National Assembly, according to Awah.

In Ghana, a Borrowers and Lenders Act was established in 2008. Education and awareness for both the bankers and MSME operators will also be required.