CBN taps Nigerian judges in continued march to close MSMEs huge  financing gap

In a move to make access to credit facilities more readily available to the over 17.5 million micro, medium and small enterprises (MSMEs) and close the estimated N48 trillion financing gap, the Central Bank of Nigeria (CBN) and the National Judicial Institute (NJI) have partnered on how to drastically reduce the perennial challenge of collateral that has continually denied them access to bank loans to bouy their businesses.

To this end, the CBN in collaboration with the NJI on Monday organized the first national workshop for judicial officers on Secured Transactions in Movable Assets Act (STMA) and National Collateral Registry (NCR) with the theme, “Leveraging Movable Assets for Credit Delivery in Nigeria; Legal and
Regulatory Framework.

With the NCR, the CBN has a database of MSMEs and their movable assets like vehicles, jewelry, sewing machines, motorcycles, and others, with which establishments like Bank of Agriculture have found safe and secure to offer loans to them for start-up vocations or expand existing ones.

It is an improvement over the hitherto rigid style where immovable assets like houses and landed property were a mandatory collateral requirement and since most of them could not afford them, they were shut out from accessing bank loans to grow their businesses.

Speaking at the workshop, Tanko Mohammed, acting chief justice of Nigeria, hailed the CBN for evolving innovative ways of addressing the poor financing nightmare of MSMEs by creating the NCR that stores information on registered movable assets which they can use to access loans.

He said the workshop was most timely as it would help judicial officers appreciate the workings of the financial sector and to enable them to pronounce sound judgments when cases involving the MSMEs are brought before them.

Godwin Emefiele, CBN governor, said support for MSMEs financing was more critical now than ever, given the need to boost Nigeria’s long-term growth trajectory since exiting recession in the second quarter of 2017.

According to him,  as at 31 January 2019, 628 financial institutions comprising 21 deposit money banks, four merchant banks, one non-interest bank, four development finance institutions, 551 microfinance banks, 13 non-bank financial institutions, and 34 finance companies have been registered on
the NCR portal.

“Lending banks have registered interest on movable assets worth N1.23 trillion, US$1.14 billion and €6.08 million through 41,408 financing statements. This underscores the potential of movable assets as
collateral to enhance access to credit and, hence, our resolve to drive its
effective implementation,” the governor said.

Emefiele said the observed growth in the economy in recent times was largely driven by continued improvements in non-oil sector activities, such as agriculture, information and technology, manufacturing, transportation and storage, trade, and other services; where they make up about 96 percent of enterprises operating within those sectors.

“Undeniably, MSMEs contribute enormously to job creation, utilization of domestic resources, income generation, and improvement of local technology.

“Despite these contributions, however, MSMEs across the country continue to face structural drawbacks, particularly due to their peculiar nature.

Poor access to finance, the high cost of borrowing, inadequate infrastructure, non-conducive business environment, and weak capacity are some of the stylized challenges constraining MSME growth in Nigeria.

Among these factors, access to affordable and sustainable finance has been identified in the development space as the most constraining.

“Strongly related to this is lack of acceptable collateral and the inherent information asymmetries. MSMEs are typically deemed risk-laden, plagued with the high mortality rate, and often lacking adequate
collaterals acceptable for conventional credit. Accordingly, the estimated US$158 billion or N48.3 trillion financing gap which characterises MSMEs in Nigeria reflects the risk-driven apathy of financial intermediaries to MSME lending,” Emefiele said, quoting a 2017 International Finance
Corporation (IFC) report.

He further explained that poor funding directly translates to weaker economic performance, noting that
Nigeria’s quest for inclusive economic growth and development would be futile if it fails to adequately ease access to finance to MSMEs, which are vulnerable today, but remain the catalysts of economic growth in
Nigeria.