Towards Improving Micro, Small and Medium Enterprise Credit Access through Movable Assets Registry in Nigeria

Abstract

There is a visible dichotomy in the Nigerian economy, which breaks it into a large and growing informal sector, buoyed by an array of inadequacies that have reduced the ease of doing business, and a formal sector that is largely stagnant. As a result of many years of incongruent and mostly unstable political-social and economic policies, unemployment and poverty rates have run amok, driving large portions of the population to the informal sector. Economic exclusion has festered as more and more people get structured to the periphery of the economy. With a population estimated by McKinsey to hit 207 million by 2020, and a financial exclusion rate of over 50%, the job of poverty reduction has become even more challenging. One of the key handicaps of the informal sector is the lack of bankable assets among operators in a banking system that is predominantly formal. Indeed, the Nigerian financial superstructure is patently formal but sits squarely on a substructure of informality. This has hampered banks' effort to maximally finance the informal sector. However, the recent introduction of the Secured Transactions in Movable Assets Law, 2017, promises to unleash the hitherto unbankable informal sector assets to facilitate financial inclusion. This paper examined the existing principles of the Nigerian law of secured credit, vis-à-vis the potentials of the new law to boost access to credit by the informal sector. It identified its prospects and proposes that the implementation of the new law be accompanied by massive enlightenment and education of stakeholders, to avoid misconceptions and mistakes that may discourage lenders from fully embracing the new rules. It also suggested a combination of strategies for making the most out of the new law so as to facilitate responsible bank lending to the informal economy in Nigeria.