It has been the experience in Nigeria that micro, small, and medium enterprises (MSMEs) find it difficult to access credit desperately needed to grow their businesses. This is largely because creditors are inclined to demand for real property as security for credit. As MSMEs usually do not have such assets (one of the reasons they are MSMEs in the first place), they either have to make do with what they have or obtain credit from non-bank sources including informal sources like family and friends. Some non-bank sources such as money lenders engage in exploitative practices such as levying of exorbitant interest rates.
The Secured Transactions in Moveable Asset Act(STiMA 2017)
The exploitation of MSME borrowers is possible usually because of the various asymmetries that exist in their relationship with lenders. In order to address the problem of MSMEs’ inability to access credit, the National Assembly enacted the Secured Transactions in Moveable Assets Act (STiMA) 2017.
STiMA makes it possible for MSMEs to obtain credit from formal institutions using their movable assets as security. This removes the real-property barrier to accessing credit. In addition, STiMA makes it possible for the borrower to be a separate individual or entity from the grantor. This means that even where MSMEs do not have credit-worthy movable assets, they may secure the involvement of a willing third party to put forward their movable asset as security for a loan. This effectively creates a triangular transaction.
STiMA and the National Collateral Registry (NCR)
For the purpose of administering credit transactions under STiMA, the National Collateral Registry (NCR) was established. The NCR keeps a record of credit transactions in relation to particular movable assets. Records are established through a process which involves the registration of security interests. Registration is done by means of a financing statement, and in order to prevent exploitation and fraud, it has been made subject to the consent of the grantor.
Since the enactment of STiMA and the establishment of the NCR, there have been over 80,000 transactions on the NCR platform. All deposit money banks in Nigeria have registered with the NCR. This is surely commendable and a step forward from what was the status quo. As a matter of fact, Nigeria’s ranking on the ‘Getting Credit’ indicator of the World Bank’s Doing Business Report improved as a result of the enactment of STiMA and other related reforms like the Credit Reporting Act 2017.
Abuse of STiMA 2017
However, considering the fact that the primary aim of STiMA is to enable MSMEs get access to credit, one may want to know the percentage of all the transactions concluded on the NCR platform that falls within the category of MSME transactions. The pertinence of this question becomes obvious when one averts their mind to the fact that STiMA does not restrict the ability to use movable assets as security for credit to MSMEs. Thus, even large corporations with movable assets worth hundreds of millions of naira may take advantage of the Act. The point here is that there is still work to be done in encouraging credit institutions to extend credit to businesses on the security of micro, small, and medium-value assets and the extent of that work needs to be known. Therefore, whether or not security is real or movable, what is of real assistance to MSMEs is the reduction in the asset value thresholds used as prerequisites for accessing credit.
Value Analysis and STiMA
A value analysis function has been incorporated into the operation of the NCR that helps in determining what transactions fall within the MSME bracket. It is expected that this will be sustained, and on the basis of this function, there will be on-going assessment of the practical impact of STiMA, which will act as a guide for future policies and drives. It is also necessary that value analysis should not be based solely on the size of the borrower’s business but also on the value of the security provided.
In that case, where an MSME is able to secure a separate individual or entity as grantor to provide security, and such security exceeds the upper threshold for MSMEs, such a transaction though benefitting an MSME, should not be regarded as an MSME loan in the strict sense.
Thus, the number of loans granted to MSMEs generally would be easily distinguished from the number of loans granted to MSMEs on the basis of security actually falling within the MSME threshold, the latter being the main goal of STiMA.