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Small firms may secure loans with vehicles, bikes

By on September 28, 2015

Some movable assets, including motor vehicles and bikes, may soon be approved as eligible loan collateral for Micro, Small and Medium Enterprises in Nigeria, investigation has shown.

This comes with the establishment of a national collateral registry by the Central Bank of Nigeria to reduce the difficulties encountered by MSMEs in accessing funds to develop their businesses.

The Managing Director, CRC Credit Bureau Limited, Mr. Tunde Popoola, who confirmed this development in an electronic mail to our correspondent, listed the other items that may be acceptable as collateral to include movable capital equipment used in manufacturing or production.

According to him, the use of landed properties and buildings will no longer be emphasised for small business operators who have valuable moveable assets that can be used to secure funding.

Popoola said, “The entry of the collateral registry as a credit or financial infrastructure into the Nigerian lending landscape is a welcome development that should be applauded, especially by the SMEs.

He explained, “Movable assets that are involved here include motor vehicles, motor bikes, movable capital equipment used in manufacturing or production such as sewing machines for fashion designers, sophisticated cameras for photographers, and others. It will also include receivables that can be confirmed for those selling on credit.”

“The whole essence is for enterprises to be able to utilise their movable assets and tools as collateral for accessing loans. This shifts emphasis away from lenders just looking at fixed assets, especially land and real estate such as buildings and warehouses only.

“With this development, those who do not have landed properties but have movable assets can use them to secure funding while the assets are still in use.”

Part of the regulations established by the CBN for the operation of the collateral registry is that a security agreement between the borrower and the secured creditor (bank) will reflect the intent of the parties to create a security interest; identify the secured creditor and the debtor; and describe the secured obligation.

The agreement will also include the maximum amount for which the security interest is enforceable, describe the collateral adequately and indicate the tenor of the amount secured.

Recently, the Assistant Director, MSME Development Fund, CBN, Mr. Tobin Jonathan, had explained that the initiative was due to the high rate of MSME applications by commercial banks.

In addition, a Deputy Director in the Financial Policy and Regulation Department of the CBN, Udofia Obot, had explained that access to finance problems of small businesses had led to the crippling of the sector’s growth and loss of latent innovation, creativity and productivity.

He noted that the collateral registry for moveable assets had improved the MSMEs’ access to financing in China, Vietnam and Ghana, where disbursements to the tune of $3.5tn in five years, $600m in three years and $3.5bn in seven years had been recorded, respectively.

 

[Punch]