Promoting SME Finance: A case for Developing Secured

Report
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?
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
2
What is a Secured Transactions System?
Legal and institutional framework to facilitate the use of
movable property as collateral for both business and
consumers credit
Bank Accounts
Accounts receivable and
secured sales contracts
Inventory and raw goods
Intellectual Property
rights
Industrial and agricultural
equipment
Durable consumer
goods
Agricultural products (crops,
livestock, fish farm)
Vehicles
3
Why is secured transactions
important for Africa and Nigeria?
4
SME Finance Gap
SME FINANCE GAP IN SUB-SAHARAN AFRICA
Between US$ 140-170 Billion
Source: McKinsey & Co. Global Financial Inclusion Practice
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
•SME Finance Gap
•Capital Stock of Firms
22%
44%
27%
34%
73%
Vehicles/machinery/equipment
Accounts Receivable
Land / Real Estate
•Source: World Bank Enterprise Surveys
Land / Real Estate
Movable property
•Collateral Taken by FIs
•Source: IFC-McKinsey
• IN NIGERIA, AROUND US$ 62 BILLION
•MISMATCH BETWEEN ASSETS OWNED BY COMPANIES
AND COLLATERAL REQUIRED
Collateral Gap
Lack of adequate collateral
Credit
Rejected:
CreditApplication
Application Rejected
Insufficient Collateral
Insufficient
Collateral
Mismatch between assets owned by
companies and collateral required
80%
70%
60%
Capital Stock of Firms
50%
40%
30%
20%
10%
22%
44%
South
Asia
Latin
America
ECA
East
Asia
Africa
0%
Did not apply: Collateral
Requirements
Too High
or Thought
Did Not Apply:
Collateral
Requirements
too
Application Would be High
Rejected
Collateral Taken by FIs
27%
73%
34%
Vehicles/machinery/
equipment
35%
Land / Real Estate
30%
25%
20%
15%
10%
5%
0%
Africa
East Asia
ECA
Latin
America
South
Asia
Source: World Bank Enterprise Surveys
8
•BENEFITS OF A MODERN SECURED TRANSACTIONS SYSTEM
• INCREASES ACCESS
TO CREDIT
REDUCING THE
RISK OF CREDIT
- Underserved
SMEs and
women
entrepreneurs
- Promotes risk
management,
prudent
lending
- Development
of industries
(factoring and
leasing)
- NBFIs
• INCREASES
MARKET
COMPETITION
- Better
interest rates
- Move from
informal to
formal
financing
- Cost savings
for businesses
• REDUCES THE
COST OF CREDIT
- Credit risk
diversification:
immovable and
movable
- Sector
diversification
in the portfolio
• PROMOTES CREDIT
DIVERSIFICATION
9
Why are financial institutions not lending, taking movable
property as collateral?
Lack of Adequate Legal
Framework
Lack of Registry of
Security Interests in
Movables
Lack of Know How on
Movable Asset Lending
Dysfunctional Registry
No Registry
Have never done that
type of financing
Lack of clear creditor
priority
Lack of publicity
Do not have the staff
with skills
Enforcement issues
No transparency
Restrictions on types of
assets
Not Interested
Not their type of business
No competition in the
lending markets
Revenue from other
sources (TB)
10
How does IFC
implement this
work?
11
Business and delivery model
• LEGAL AND
REGULATORY
FRAMEWORK
1
• MONITORING
IMPACT
1. Create Committee
2. Draft new Secured
Transactions Law
3. Awareness
4. Submit Law to
Parliament
5. Draft registry
regulations
1. Develop monitoring
and evaluation plan
including baseline
information
2. Conduct periodic
monitoring of impact
through registry
indicators and surveys
1. Determine
Government Agency
to Host Registry
2. Develop Technical
Specifications
3. Hardware and
Software
Procurement
4. Training/awareness
5. Launching of
registry
1. Training and
awareness to main
stakeholders (both
public and private
sector) on the new
system, including law
and registry
2. Training on
movable asset
financing for Financial
Institutions
4
• CREATION OF
ELECTRONIC
REGISTRY
2
• BUILDING THE
CAPACITY OF
STAKEHOLDERS
3
12
Current project Portfolio
AFRICA
Ghana
Rwanda
OHADA
South Sudan
Sierra
Leone
Liberia
MENA
Afghanistan
Jordan
Lebanon
Palestine
Morocco
Egypt
Yemen
UAE
AMF
PIPELINE
EAST ASIA
& PACIFIC
SOUTH
ASIA
China
Lao PDR
Mongolia
Philippines
Vietnam
Sri Lanka
Nepal
India
ECA
Azerbaijan
Belarus
Moldova
Tajikistan
Uzbekistan
LAC
Colombia
Haiti
Costa Rica
AFRICA (Nigeria, Guinea, Coted’Ivoire, Togo, Zambia)
13
Africa portfolio
and early results
14
GHANA -Secured Transactions Reform
Project components:
1) Legal Framework:
Key results (as of Dec. 2012):
• Borrowers and Lenders Act, 2008
• Registry regulations, 2012
 More than 45,000 loans registered
2) Collateral Registry:
 More than US$6 billion in financing using
movable assets as collateral to
• New on-line registry, 2012
- SMEs (21%)
- Micro enterprises (65%)
- Women entrepreneurs (70% of
micro loans)
Next Steps:
• Enactment of revised B&L Act, 2013
 Movable Collateral:
• Ongoing awareness and capacity
building
- Inventory & receivables (24%)
- Motor vehicles (17%)
- Household goods (17%)
15
GHANA - Impact on SMEs: A practical case
CAL BANK: Purchase Financing Scheme for Gold Mining
Developed a local supply chain for big mining
corporations, through local SME service providers
More than 100 local SMEs have received more than US$ 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
16
LIBERIA -Secured Transactions and Collateral Registry Project
Strong Institutional Support:
 Central Bank of Liberia
Legal Framework:
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
 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
Impact of reforms
in other regions
18
Impact of Secured Transaction Reform in Asia
and Latin America
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
19
The Way Forward For Nigeria
20
Business and delivery model
• LEGAL AND
REGULATORY
FRAMEWORK
1
• MONITORING
IMPACT
1. Create Committee
2. Draft new Secured
Transactions Law
3. Awareness
4. Submit Law to
Parliament
5. Draft registry
regulations
1. Develop monitoring
and evaluation plan
including baseline
information
2. Conduct periodic
monitoring of impact
through registry
indicators and surveys
1. Determine
Government Agency
to Host Registry
2. Develop Technical
Specifications
3. Hardware and
Software
Procurement
4. Training/awareness
5. Launching of
registry
1. Training and
awareness to main
stakeholders (both
public and private
sector) on the new
system, including law
and registry
2. Training on
movable asset
financing for Financial
Institutions
4
• CREATION OF
ELECTRONIC
REGISTRY
2
• BUILDING THE
CAPACITY OF
STAKEHOLDERS
3
21
STAKEHOLDER FRAMEWORK
CENTRAL
BANK OF
NIGERIA
DONOR
COMMUNITY
(DFID,
IFC/WBG)
- CORPORATE
AFFARIS
COMMISSION
- FEDERAL
MINISTRY OF
FINANCE
- FEDERAL
MINISTRY OF
JUSTICE
FINANCIAL INSTITUTIONS, MFIs, NBFIs
BUSINESSES (CORPORATES, MSMEs, INDIVIDUAL
ENTREPRENEURS), BUSINESS ASSOCIATIONS, CHAMBERS OF
COMMERCE, INDUSTRY ASSOCIATIONS, CONSUMERS
THANK YOU!
Reginald Chijioke Nworka
IFC Global Secured Transactions & Collateral
Registries Program
[email protected]
23

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