Osinbajo signs 2 bills into laws to ease credit access for MSMEs

Acting President Yemi Osinbajo has signed into law two bills that wwould facilitate access to more affordable credit for Nigerians.

The laws are: the Secured Transactions in Movable Assets Act, 2017 (otherwise known as Collateral Registry Act) and the Credit Reporting Act, 2017.

The Collateral Registry Act’ ensures that Micro, Small and Medium Enterprises (MSMEs) in Nigeria can register their movable assets and accounts receivable in the National Collateral Registry and use same as collaterals for accessing loans.

This in turn will increase their chances at accessing financing and tackle one of the major obstacles faced by MSMEs.

The Credit Reporting Act provides for credit information sharing between Credit Bureaux and deposit lenders as well as other institutions that provide services on credit such as telecommunication companies and retailers.

A Credit Bureau is a company that collects information relating to the credit ratings of individuals and makes it available to financial institutions that need such information.

Such information is used to determine an individual’s credit-worthiness and whether or not to grant loan applications to such individuals.

Access to credit is critical to economic growth and is considered to be the motor for driving private sector development.

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However, in Nigeria more than 70 per cent of private enterprises, typically MSMEs, have limited or no access to credit.

Credit applications get rejected due to insufficient credit history and information for the lender to use to make a reasonable judgment, as well as unacceptable collateral but the two new Acts remove those obstacles for MSMEs.

Traditionally, banks only give loans to businesses that can provide fixed land and property as collateral.

This shuts out MSMEs which usually own only movable assets like motor vehicles and equipment.

The Collateral Registry Act, 2017, will give confidence to lenders to utilise the Registry and thereby make credit available to MSMEs and individuals through the use of their movable assets as collateral.

The Credit Reporting Act enables lenders to make reasonable judgment on whether or not to extend credit to an individual, and reduces the cases of bad loans.

On Feb. 21, the National Assembly (NASS) publicly committed to passing the two bills as part of the 60-Day National Action Plan for Ease of Doing Business initiated by the Presidential Enabling Business Environment Council (PEBEC).

NASS last week forwarded the bills to the Acting President for assent.

The Acts, thus replace the existing Central Bank of Nigeria (CBN) Guidelines regulating the operations of the National Collateral Registry and Credit Bureaux by formal legal frameworks.