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Promoting SME Finance : A case for Developing Secured Transactions and a Collateral Registry for Nigeria. Reginald Chijioke Nworka Abuja, Nigeria August16th, 2013. OUTLINE. 1. What is a Secured Transactions System?. 2. Why is it Important for Nigeria?. - PowerPoint PPT Presentation
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Promoting SME Finance: A case for
Developing Secured Transactions and a Collateral
Registry for NigeriaReginald Chijioke Nworka
Abuja, Nigeria August16th, 2013
1. What is a Secured Transactions System?OUTLINE
2
2. Why is it Important for Nigeria?
3. Current State of Secured Transactions in Nigeria and Relevant Stakeholders
4. Potential Impact Based on Results in Other Jurisdictions
4. Proposed Next Steps for Nigeria
Legal and institutional framework to facilitate the use of movable property as collateral for both business and consumers credit
Bank Accounts Inventory and raw goods
VehiclesIndustrial and
agricultural equipment
Durable consumer goods
Agricultural products (crops, livestock, fish
farm)
Intellectual Property
rights
Accounts receivable and secured sales
contracts
What is a Secured Transactions System?
3
Why is secured transactions important for Africa and
Nigeria?
4
SME FINANCE GAP IN SUB-SAHARAN AFRICA
Source: McKinsey & Co. Global Financial Inclusion Practice
SME Finance Gap
Between US$ 140-170 Billion
5
SME Finance Gap CGAP/World Bank– Only 5% of SMEs Have Access to a Loan
70% of SMEs were denied financing when applying to a loan
80% of SMEs did not apply for financing but would like to have a loan/line of credit
• % of Firms Using Banks to Finance Working capital
• SME FINANCE GAP AND COLLATERAL GAP
44%
34%
22%
Vehicles/machinery/equipmentAccounts ReceivableLand / Real Estate
73%
27%
Land / Real Estate Movable property•Ca
pita
l Sto
ck o
f Fir
ms
•C
olla
tera
l Tak
en b
y FI
s
• Source: World Bank Enterprise Surveys
• SME Finance Gap
• MISMATCH BETWEEN ASSETS OWNED BY COMPANIES AND COLLATERAL REQUIRED
• IN NIGERIA, AROUND US$ 62 BILLION• Source: IFC-McKinsey
C r e d i t A p p l i c a t i o n R e j e c t e d - I n s u f f i c i e n t C o l l a t e r a l
0 %1 0 %2 0 %3 0 %4 0 %5 0 %6 0 %7 0 %8 0 %
Afr
ica
Ea
st
As
ia
EC
A
La
tin
Am
eri
ca
So
uth
As
ia
D i d N o t A p p l y : C o l l a t e r a l R e q u i r e m e n t s t o o H i g h
0 %
5 %
1 0 %
1 5 %
2 0 %
2 5 %
3 0 %
3 5 %
A f r ic a E a s t A s ia E C A L a t inA m e r ic a
S o u t hA s ia
Credit Application Rejected: Insufficient
Collateral
Did not apply: Collateral Requirements Too High or Thought Application Would
be Rejected
Collateral GapLack of adequate
collateral
Source: World Bank Enterprise Surveys
Mismatch between assets owned by companies and
collateral required
44%
34%
22%
Vehicles/ma-chinery/equip-ment
73%
27%
Land / Real Estate
Capital Stock of Firms
Collateral Taken by FIs
8
• BENEFITS OF A MODERN SECURED TRANSACTIONS SYSTEM
9
• INCREASES ACCESS TO CREDIT REDUCING THE RISK OF CREDIT
• REDUCES THE COST OF CREDIT
• PROMOTES CREDIT DIVERSIFICATION
• INCREASES MARKET COMPETITION
• - Underserved SMEs
and women entreprene
urs• - Promotes
risk management, prudent
lending
• - Better interest
rates• - Move
from informal to
formal financing• - Cost
savings for businesses
Why are financial institutions not lending, taking movable property as collateral?
Restrictions on types of assets
Lack of clear creditor priority
Enforcement issues
Lack of Adequate Legal Framework
Lack of Registry of Security Interests in
Movables
Dysfunctional RegistryNo Registry
Lack of publicity
No transparency
Have never done that type of financing
Do not have the staff with skills
Lack of Know How on Movable Asset
Lending
Not their type of business
No competition in the lending markets
Revenue from other sources (TB)
Not Interested
10
How does IFC implement this work?
11
Business and delivery model
• LEGAL AND REGULATORY FRAMEWORK
• CREATION OF ELECTRONIC REGISTRY
• BUILDING THE CAPACITY OF STAKEHOLDERS• MONITORING IMPACT
• 1. Create Committee
• 2. Draft new Secured
Transactions Law
• 3. Awareness• 4. Submit Law
to Parliament• 5. Draft
registry regulations
• 1. Determine Government Agency to
Host Registry• 2. Develop
Technical Specifications
• 3. Hardware and Software Procurement
• 4. Training/awar
eness• 5. Launching
of registry
1 2
4 312
Current project Portfolio
AFRICAGhanaRwandaOHADA South Sudan
Sierra Leone
Liberia
MENAAfghanistan
JordanLebanonPalestineMoroccoEgyptYemenUAEAMF
EAST ASIA & PACIFICChinaLao PDRMongoliaPhilippines
Vietnam
SOUTH ASIA
Sri LankaNepalIndia
ECAAzerbaijan
BelarusMoldovaTajikistanUzbekistan
LACColombiaHaitiCosta Rica
PIPELINE
AFRICA (Nigeria, Guinea, Coted’Ivoire, Togo, Zambia)
13
Africa portfolio and early
results
14
Key results (as of Dec. 2012): More than 45,000 loans registered More than US$6 billion in financing
using movable assets as collateral to- SMEs (21%) - Micro enterprises (65%)
- Women entrepreneurs (70% of micro loans) Movable Collateral:
- Inventory & receivables (24%) - Motor vehicles (17%) - Household goods (17%)
GHANA -Secured Transactions Reform
Project components:
1) Legal Framework:• Borrowers and Lenders Act,
2008• Registry regulations, 2012 2) Collateral Registry:• New on-line registry, 2012
Next Steps:• Enactment of revised B&L
Act, 2013• Ongoing awareness and
capacity building
15
More than 100 local SMEs have received more than US$ 10 million. Created hundreds of new jobs. SMEs use movable assets (contracts, receivables, equipment) as collateral No defaults in the 30 months that program has been operating
GHANA - Impact on SMEs: A practical case
CAL BANK: Purchase Financing Scheme for Gold Mining
Developed a local supply chain for big mining corporations, through local SME
service providers
16
LIBERIA -Secured Transactions and Collateral Registry Project
Strong Institutional Support: Central Bank of Liberia
Legal Framework: New Secured Transactions Law,
enacted in 2010 (Commercial Code)
Registry regulations approved
Next Steps: Registry design and
development Communications & Public
Awareness Training and capacity building
17
Context: Average NPL rates at
23.6% Lack of access to finance
for enterprise development (35% of firms identify it as a major constraint)
Only 14% of firms have a loan/credit line
Impact of reforms in
other regions
18
Impact of Secured Transaction Reform in Asia and Latin America
19
MEXICO Law reform and new centralized online registry (October 2011) Over 125,000 loans have been registered – 45% to the
agricultural sector and 90% to SMEs Businesses have saved US$3.8 billion in fees because the
registrations and searches are free
HONDURAS
Law reform enacted (based on OAS Model Law) and new centralized online registry (March 2011)
Introduced extrajudicial enforcement as result of the reform
More than 12,000 loans registered, mostly for SMEs
CHINA Law reform (2007) and new centralized online registry for accounts receivables and leasing (2008)
Project has led to more than US$ 3.5 trillion in financing secured with receivables, mostly to SMEs (60%)
Development of the factoring and leasing industries
The Way Forward For Nigeria
20
Business and delivery model
• LEGAL AND REGULATORY FRAMEWORK
• CREATION OF ELECTRONIC REGISTRY
• BUILDING THE CAPACITY OF STAKEHOLDERS• MONITORING IMPACT
• 1. Create Committee
• 2. Draft new Secured
Transactions Law
• 3. Awareness• 4. Submit Law
to Parliament• 5. Draft
registry regulations
• 1. Determine Government Agency to
Host Registry• 2. Develop
Technical Specifications
• 3. Hardware and Software Procurement
• 4. Training/awar
eness• 5. Launching
of registry
1 2
4 321
STAKEHOLDER FRAMEWORK
DONOR COMMUNITY
(DFID, IFC/WBG)
CENTRAL BANK OF NIGERIA
FINANCIAL INSTITUTIONS, MFIs, NBFIs
- CORPORATE AFFARIS COMMISSION- FEDERAL MINISTRY OF FINANCE- FEDERAL MINISTRY OF JUSTICE
BUSINESSES (CORPORATES, MSMEs, INDIVIDUAL ENTREPRENEURS), BUSINESS ASSOCIATIONS, CHAMBERS OF
COMMERCE, INDUSTRY ASSOCIATIONS, CONSUMERS
THANK YOU!
23
Reginald Chijioke NworkaIFC Global Secured Transactions &
Collateral Registries [email protected]