Acting President Yemi Osinbajo, SAN, has signed into law two bills from the National Assembly that will eventually facilitate access to more affordable credit for Nigerians.
The bills which have now end up to be ‘Acts’ are the Secured Transactions in Movable Assets Act, 2017 (otherwise called Collateral Registry Act) and the Credit Reporting Act, 2017.
‘The Collateral Registry Act’ ensures that Micro, Small and Medium Enterprises (MSMEs) in Nigeria can sign up their movable assets inclusive of motor vehicles, equipment and accounts receivable within the National Collateral Registry, and use equivalent as collateral for gaining access to loans. This in turn will increase their chances at getting access to financing and tackle one of the main barriers confronted faced by MSMEs.
Alternatively, ‘The Credit Reporting Act’ provides for credit information sharing between Credit Bureaus and lenders (like banks), as well as other establishments that offer services on credit consisting of telecommunication companies and retailers. (A Credit Bureau is described as a company that collects information regarding the credit ratings of people and makes it available to financial institutions, who want such information to determine a person’s credit-worthiness and whether or not to grant loan applicants to such individuals.)
To get access to credit is critical to economic growth and is considered to be the motor for driving private sector development. But, in Nigeria greater than 70% of private enterprises, typically MSMEs, have constrained or no access to credit. Credit applications get rejected because of inadequate credit score history and information for the lender to use to make a reasonable judgement, in addition to unacceptable collateral. The 2 new acts remove those boundaries for MSMEs.
In History, banks only provide loans to businesses which can offer fixed land and property as collateral. This shuts out MSMEs which usually own movable assets like motor vehicles and equipment. The Collateral Registry Bill, 2017, will give confidence to lenders to utilize the Registry and thereby make credit available to MSMEs and individuals via the use of their movable assets as collateral.
The Credit Reporting Act now allows lenders to make reasonable judgement on whether or not to extend credit to an individual, and reduces the cases of bad loans.
On February 21st, the management of the National Assembly publicly devoted to passing the two bills as a part of the 60-Day National Action Plan for Ease of Doing Business initiated via the Presidential permitting Business Environment Council (PEBEC). That promise was kept by the National Assembly last week with the Bills forwarded to the Acting President for assent.
With the passage of these Acts, the established Central bank of Nigeria (CBN) hints regulating the operations of the National Collateral Registry and Credit Bureaux have now been replaced by using formal legal frameworks.
The passage of these Acts might facilitate the achievement of the goals of the Presidential Enabling Business Environment Council (PEBEC) set up by President Muhammadu Buhari in July 2016 and chaired through the vice-president to gradually make Nigeria a less difficult location for companies to start and thrive.