THE NATIONAL COLLATERAL REGISTRY- A WELCOME DEVELOPMENT
THE NATIONAL COLLATERAL REGISTRY- A WELCOME DEVELOPMENT
In recent times, there has been a lot of news concerning the efforts being made by the Presidency and all the relevant stakeholders towards improving Nigeria’s ranking on the Word Bank Doing Business Report. It has become a matter of concern that the country is ranked poorly having been placed 169 out of the 183 countries considered in 2017. In response to our poor performance, The Presidential Enabling Business Environment Council (PEBEC) set out a 60-day National Action Plan with a view to improving efficiency in business registration, the visa issuing process, land registration procedure among others. PEBEC is expected to simplify export procedures and related documentation by leveraging on technology, with a view to removing administrative bottlenecks and bureaucracy.
I attended a PEBEC stakeholders meeting recently which had in attendance representatives of the Corporate Affairs Commission (CAC), The Standards Organisation of Nigeria (SON), the Central Bank of Nigeria (CBN) and other important regulators. In terms of starting a business, a number of reforms were highlighted, including the fact that company name search is now functional on the CAC website and that documents can therefore be uploaded, enabling e-submission of registration documents. It was also mentioned that the FIRS e-payment solution is now integrated into the CAC portal to enable e-stamping and that company registration can as such be completed without involving the services of legal practitioners. The progress made thus far towards ensuring seamless online registration is laudable. However, the online process is still fraught with challenges particularly those relating to the reliability of technology. It is no news that the relevant portal is almost always down. This makes a 24-hour turn-around time for business registration, from submission to conclusion almost impossible. A number of lawyers are upset with the development which seeks to ensure that company registration can be completed by a business promoter without involving a solicitor. I know this reform may reduce earnings for professionals but it is a necessary step towards promoting SMEs and international best practice.
In the area of registering of property, the sworn affidavit is no longer required to conduct title searches at the Lagos Land Registry and a complaint mechanism has been made available online. I am particularly excited about the fact that in a bid to assist small businesses in obtaining credit, the National Collateral Registry (a CBN/ IFC Initiative) has become fully functional. In most jurisdictions across the globe, the creation of security interests in moveable properties are as commonly acceptable as real property especially among individuals and small businesses given that such security interests are more accessible and easily realizable. The Registry, was made operational by Part III of the Central Bank of Nigeria’s Regulations on Registration of Security Interests in Movable Property by Banks and other Financial Institutions (Regulations No, 1, 2015) because the appropriate Bill is still pending before the National Assembly. The said Bill is at its third reading stage. The objective of the Regulation is to provide a regulatory framework for accessing credit facilities that are secured by movable property, the creation and perfection of security interests and the realisation of such security interests
The website, (www.ncr.gov.ng) is presently available for the use of lenders to determine if any prior security interests exist for a collateral being pledged by a borrower. The lender can also register his or her own security interest in the said collateral. This is meant to provide more information on a borrower’s collateral to forestall a situation whereby lenders are unaware that assets have been or are being pledged multiple times. It makes it possible to easily confirm the status of a movable asset because the database is public. The provision of this information helps make lenders more confident in granting loans. There has also been increased sensitization on the usage of credit bureaus, which provide the credit history of borrowers and shares it among lenders. It must be mentioned that a uniform criteria for credit ratings should be adopted across the various agencies, to minimize the confusion being created by varying standards among Credit Bureaus.
Given the volatility of small businesses and the high credit risks that these concerns portend to lenders, they are often subjected to high interest rates and very strict collateral requirement. Many small businesses cannot boast of fixed assets such as land and building and plants and machinery. A large proportion of their assets are in the fluid cum movable form and as such their collateral usually takes this form. As the principle goes, you cannot give what you do not have. Based on the opportunities in agri-business among others, the Collateral Registry regime allows Nigerian farmers and entrepreneurs to unlock significant sources of capital with assets that would otherwise not be looked at by lenders as acceptable collateral. I am aware cows and stock are currently listed on the platform.
In my view, the establishment of this online platform is a significant move towards encouraging banks and other financial institutions in Nigeria to increase lending to MSMEs. Amongst other things, the Regulation like the Bill of Sale Act will create a wider pool of assets that can be utilized as collateral for loans or other obligations required to be collaterized. The availability of more funds to this sector will without doubt enhance the liquidity of the real sector of the Nigerian economy. In addition to guaranteeing a wider pool of collateral, the Regulation also provides protection for Obligors and their collateralized assets by providing clear rules for the creation and realization of security. Increased publicity and awareness is however required to support the successful operations of the registry. The conclusion at the PEBEC workshop which I align with, is that local banks should be encouraged to make use of the moratorium window provided by the apex bank. Further, partnership between the financial institutions and the judiciary is encouraged to ensure efficient speed of enforcement where a claim arises, particularly because of the volatile nature of movable assets.