Apart from helping to provide micro, small and medium enterprises (MSMEs) access to credits from financial institutions, the Registrar of the National Collateral Registry, Mohammed Mainasara, says the agency could also bring an end to the high incidence of non-performing loans and bad debts in the country. He spoke recently with BUSINESS & ECONOMY EDITOR, BASSEY UDO in Abuja
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PT: One of the major challenges against financial inclusion among micro, small and medium enterprises (MSMEs) is the requirement by the banks for collateral as a condition for granting credits. How does the National Collateral Registry bridge this gap?
NCR: If you look at the financial sector prior to the establishment of the National Collateral Registry, banks hardly accepted moveable assets i.e. those assets that their owners can move from one place to another.
They always preferred the assets that are fixed, or stationary in a particular location. In that case, banks preferred landed property and buildings.
Even with that, the location of such assets also matters. They always preferred them located at choice locations, like Maitama or Asokoro in Abuja, or Lekki or Ikoyi in Lagos, and other such places.
But, when we look at about 41 million small and medium enterprises in Nigeria today, according to records published recently by the Small and Medium Enterprises Development Agency of Nigeria (SMEDAN), about 98.9 per cent come under micro-enterprises (this are small businesses that do not require more than between N50,000 and N200,000 to do businesses.
If we look at the cost implication of administering those small loans by the banks, it will be very difficult for banks to streamline and profile them to be able to give them credits for their business activities. What the Central Bank of Nigeria (CBN) and the International Finance Corporation (IFC), an arm of the World Bank, decided was to establish a National Collateral Registry. The aim was to register interests on moveable assets that can be used as collaterals for credits.
The objective was to simplify the usage and availability of the collateral for purposes of securing credits. Take for an example, you are a photographer who wants to expand his business.
You may have only one camera with two or more lenses. For you to expand, you may require digital equipment and some lenses.
If you decide to apply for a loan with that camera, which may be valued at N1 million or N2 million, the bank should oblige you with the loan. In order to allow you to use that camera as collateral, you have to register your interest in it.
What this means is that the bank is not taking over the collateral, since it is the equipment you need to work with to repay the loan.
If the bank decides to take away the camera, which is the collateral for the loan, the photographer will not have the tool to work with to repay the loan. That is the essence of the registry.
PT: What are the kind of things that prospective loan applicants can use as collaterals for credit?
NCR: A lot of things are being used in recent times by banks to extend credits to small businesses, including cars, jewelries, tailoring machines and other equipment.
At the moment, even intellectual property are being registered as collaterals for loans. This is because if one has an idea in one’s head, it is a form of asset that can serve as a collateral for any businessman or institution that believes in your capacity to extend credit to you to develop that intellectual idea into a product that has value that could be marketable and beneficial to the people and the society.
PT: How much impact has the Registry recorded since it was established?
NCR: The Collateral Registry is a web-based system established to allow lenders to determine prior security interests over movable assets pledged as collateral.
The Registry started operation in 2017 to improve access to finance, particularly for MSMEs. But, to assess its impact, I can say that we have so far done over N2 trillion in terms of loans to MSMEs.
The beautiful thing about these loans is that the bulk of it are coming from the microfinance banks. These are the banks that are very close to the people at the grassroots. That is what we expect to promote financial inclusion you spoke about earlier.
We believe this will continue, because the banks that are closer to the grassroots, villages and the rural areas should be able to expand their credits to those people at that level, to be able to continue their businesses and grow the economy.
If you look at what is going on, in every household, there is an asset they have that can serve as a collateral for credits.
It could be a small generator, machine, motorcycle, or even bicycle. Some people even register animals and crops in their farms.
All these are collaterals, because they are immovable assets. With the advent of warehousing receipts, which makes it possible for us to decide to keep our harvests in the custody of a warehouse, a receipt will be issued until you confirm your ownership of those crops. You can also use the receipt to approach a bank to extend credits to you.
You can also register what you call “account receivables.” If you are in a small business supplying eggs to a school or other places, with that promise or assurance of a steady stream of income flow into your account, can also be registered by banks their interest in those streams of income for them to become collaterals to you.
So, the small business does not need to own a house or land before the bank extends credits to it as a business. It is only this kind of arrangement that we can develop our SMEs and our economy.
PT: In spite of the attempt to streamline the conditions to be accepted on the Registry for credits, the greatest challenge the banks have remains the fear of the SMEs repaying the loans extended to them. How does the NCR guarantee that the loan beneficiaries will repay as a check to the menace of bad debts?
NCR: The Registry was established by an Act of the National Assembly. This means, there is a law backing its establishment as well as a legal framework for its activities. This allows the banks to set the due process of getting back their monies as well as their assets in the event of default in repayment by the customer.
For instance, if someone has one vehicle and decides to use it to access credit from a bank, if the person becomes complacent over his obligation to repay the loan, there are no other option than the car going to the bank, for them to sell and recover their money.
So, the Registry is a win-win approach to both the creditors and borrowers. If one uses his assets to secure a loan, he will be determined to work harder to ensure the loan is repaid on time and on schedule to ensure his asset is not encumbered.
It is only the loan has been repaid that the asset will be released back to the owner. Whoever wants to check out on that asset that was used as collateral for the loan will see it as encumbered, if you have not repaid the loan.
Again, the person that has not repaid his loan cannot get access to any other loan until he has cleared his loan obligation with the first creditor, because his name is in the financial system.
That is why it is expected that both the public and the creditors should be able to conduct a search on the system to confirm the status of everyone that intends to take a loan.
PT: If a customer defaults on a loan he took in Bank A and crosses over to Bank B, how would Bank B know the status of the customer in Bank A before granting his loan request?
NCR: The search to confirm the status of those who intend to take a loan is readily available to everyone in Nigeria free of charge. Anyone who wants to conduct a search on anybody’s asset can just look at the IMEI No. to determine whether the asset pledged as collateral has already been used to secure another loan elsewhere.
One of the basic characteristics of this Registry is to have a unique identifier in the system. To be identified as a person, maybe there are several persons who bear the same name, the only thing that can distinguish you from other people bearing the same name is the unique number.
In the NCR system, the unique number is either the NIMC (National Identity Card), or the Bank Verification Number (BVN) (if you are a customer of a bank).
For now, the NCR uses the BVN, because whoever transacts business in the banking sector must have a BVN.
So, whoever wants to use the assets as collateral must be someone that would have good intention to use that money judiciously in order to make a profit to repay the bank loans.
For all those countries that have started using collateral relations, the rate of default on the payment of bank loans have come down drastically, while the rate of non-performing loans have almost been eliminated.
One typical scenario that is very prevalent in the country is the serial loans defaulters, who move from one bank to another to collect loans they know they will not pay.
With this system in place, it has come to checkmate all those fraudulent practices. Once anybody has borrowed from a bank and his data have been captured on the system, then it is incumbent on the person to ensure he does the due diligence to ensure he comes back to pay his loan.
Otherwise, his name will never be free to take any credit anywhere as long the particular creditor has conducted search on the system.
Sometimes, people go to buy cars without knowing they are stolen cars. But, once you buy a car, there is always a vehicle registration number. That is why we advise people to ensure that if they buy second-hand cars, they should use the chassis number of the vehicle to check whether it has ever been used by somebody else’s car, free or still encumbered.
That is one of the clauses in the NCR Act that says each Registry that uses moveable assets as collaterals must be seen to be registered on the National Collateral Registry.
PT: Interconnectivity of one system with other systems, like the financial and tax systems, immigration, etc. is still a big issue in Nigeria. Is the NCR system linked in any way to other systems to ensure uniformity?
NCR: Today, the NCR is already linked with the Corporate Affairs Commission (CAC). Any company or the individual that has floating charges registering in the CAC, we will be able to capture the number of moveable assets the person has, be it machinery, computers, or others.
That is why it is possible to track those who default in the repayment of loans in one bank and attempts to cross another bank to request for another facility.
Once you log in your details, your BVN biometrics will immediately pop up in the network to show where you had already collected a loan.
PT: The other challenge to financial inclusion has to do with literacy. How do the people in the grassroots who are barely literate be able to access the benefits that your registry offers?
NCR: One of the critical expectations of the public from the Registry is to carry out the sensitization and mobilization of the people to ensure it remains accessible and used by anybody.
Like I said earlier, the bulk of those who use the Registry are from micro-finance banks. There are over 1,000 micro-finance banks in the country. I will say that there are virtually very few villages and hamlets that do not have one micro-finance bank or the other close to them.
And it not only micro-finance banks that can lend money to people. Ordinary cooperatives and non-bank financial institutions can also do. The cooperatives can register those assets. Even registered “Esusu” groups can also register on the Registry.
So, those registrations by people within those organizations should be able to enlighten those that are illiterates on how to use those services.
If you look at the way the Registry is structured, in every micro-finance bank, it is taking care of its locality. And most probably the manager must have known everybody within that locality. Even if not all, he must have somebody that knows the people you are dealing with. So, the character also matters
The Registry is one of those things that people should venture in, take advantage of and utilize.
PT: What are those drawbacks to the Registry meeting its targets and objectives?
NCR: At the moment, the NCR is just about three years old. For the period, my honest assessment is that there is nothing we can say has constituted a challenge to the realization of our mandate and objectives, particularly in terms of promoting financial inclusion.
Everything is going on seamlessly so far. Each and every institution involved in the system has its roles clearly delineated.
As a borrower, you know where your right begins and ends. As a creditor, the legal framework has defined and espoused where each persons’ rights and responsibilities begin and end.
Once everyone understands the system and the legal framework, we should not expect any problem. There is a method of litigation and arbitration in the event of any infraction on the rules.
For example, if one approaches a creditor and tried to deceive him about his real identity, by the time his real identity is found out, the person would be liable to go to prison, in addition to a fine of N100,000, just for giving false information. So, we do not expect anybody to come and give any false information at the Registry.
If it is a company or any corporate entity, the fine is more than that. It could be as much as N1 million and the promoters of the company will also be liable to go to jail.
All these are possible because there is a legal structure in place to regulate all activities of the Registry.
On the other hand, even when there is default in the loan repayment, the bank cannot just move in and take over the loan defaulter’s property.
The bank would be expected to give sufficient timeframe to pay up. It is only when the defaulter fails to pay after all these conditions that the bank can declare the property has been taken over.
Even at that, the bank cannot go straight to the loan defaulter’s house to seize his property without the assistance and formal authorization of the police, which is the law enforcement agency of government. The long and short of it is that everybody must follow due process to ensure that there is no rancour in the process of repossessing the assets.
PT: With NCR, how bright is the future for micro, small and medium enterprises in terms of access to credits to grow their businesses and the economy?
NCR: All I can say is that the future for them is very bright. If you look at it, we have over 19 African countries that have established Collateral Registries as at today, including Nigeria.
Ghana started it, and they have experienced a positive growth in terms of delivering credits to small businesses. Nigeria is also making tremendous impact in that direction.
As I said, we are just three years old. But, we have recorded over N2 trillion worth of credits going to micro, small and medium enterprises. One can imagine what will happen in the next ten years.
PT: How much of the N2 trillion has gone into agricultural development?
NCR: A lot! The banks give a lot of emphasis to agriculture. All Anchor Borrowers Programme clients are registered on the NCR. So also are the Agric-Business/Small and Medium Enterprises Investment Scheme (AGSMEIS) borrowers.
Others that operate under so many other schemes are also registered here. Also, all the five development finance institutions, namely Bank of Agriculture, Bank of Industry, Nigeria Incentive-Based Risk Sharing System for Agricultural Lending (NIRSAL Plc.), Development Bank of Nigeria and Nigeria Export-Import Bank are registered on the NCR.
Above all, all the deposit money banks in Nigeria are also registered on the NCR. This is mandatory for all of these institutions.
The over 650 micro-finance banks nationwide are all registered with the NCR. We also have 34 finance companies in the country. They are all registered with the NCR.
So, it is not possible to go to any of these institutions and take loan, then default and expect not to be found out. Clearly the NCR marks the way to the end of bad debts in Nigeria.
