The Acting President, Yemi Osinbajo, yesterday, signed into law two bills from the National Assembly. These are the Secured Transactions in Movable Assets Act, 2017 (otherwise known as Collateral Registry Act) and the Credit Reporting Act, 2017. These bills, which have now become Acts, should ultimately boost the Nigerian economy and encourage the diversification drive of the present government as well as improve the Ease of Doing Business campaign of the FG.
In more direct terms, these Acts are expected to solve the 2 most significant problems that plague Nigerian entrepreneurs today- inability to access funds due to lack of immovable assets demanded by lenders and the often unfavorable ratings given entrepreneurs by lenders, mostly commercial banks, due to insufficient credit history. This is, in turn, likely to facilitate access to more affordable credit for entrepreneurs.
The Secured Transactions in Movable Assets Act, 2017, provides for the registration of movable assets such as motor vehicles, accounts receivables, and other movable assets while the Credit Reporting Act provides for credit information sharing between Credit Bureaus and lenders (such as banks), as well as other institutions that provide services on credit such as telecommunication companies and retailers.
A Credit Bureau is defined as a company that collects information relating to the credit ratings of individuals and makes it available to financial institutions, who need such information to determine an individual’s credit-worthiness and whether or not to grant loan applications to such individuals. The benefits of the Act are as follows.
Collateral Registry Act
- Entrepreneurs can now register their movable assets such as motor vehicles, equipment and accounts receivable in the National Collateral Registry.
- This official record of assets can now be accessed by lenders, commercial banks especially, and used as collateral for accessing loans.
- The expanded collateral options will increase MSMEs’ chances at accessing financing and tackle one of the major obstacles faced by them.
Credit Reporting Act
- The Act allow for credit bureaus to collate financial information of individuals and use such to rate them.
- Lenders will now have sufficient information relating to the credit ratings of individuals to make reasonable judgement on whether or not to extend credit to them
- For banks, this will reduce the cases of bad loans, which many complain is already crippling them.
- For MSMEs, they will now be better placed to receive favorable ratings and in turn, access
Access to credit is critical to economic growth and is considered to be the motor for driving private sector development. However, in Nigeria more than 70% of private enterprises, typically MSMEs, have limited or no access to credit.
In addition, credit applications get rejected due to insufficient credit history and information for the lender to use to make a reasonable judgement, as well as unacceptable collateral. The two new Acts remove those obstacles for MSMEs, thus allowing them to make a more significant contribution to the economy at large.