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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?.

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slide1

Promoting SME Finance: A case for Developing Secured Transactions and a Collateral Registry for Nigeria

Reginald Chijioke Nworka

Abuja, Nigeria

August16th, 2013

outline
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

what is a secured transactions system
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

Accounts receivable and secured sales contracts

Intellectual Property rights

Inventory and raw goods

Bank Accounts

Durable consumer goods

Industrial and agricultural equipment

Agricultural products (crops, livestock, fish farm)

Vehicles

slide5

SME Finance Gap

Between US$ 140-170 Billion

SME FINANCE GAP IN SUB-SAHARAN AFRICA

Source: McKinsey & Co. Global Financial Inclusion Practice

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
SME Finance Gap

% of Firms Using Banks to Finance Working capital

slide7

SME FINANCE GAP AND COLLATERAL GAP

  • IN NIGERIA, AROUND US$ 62 BILLION

SME Finance Gap

Source: IFC-McKinsey

MISMATCH BETWEEN ASSETS OWNED BY COMPANIES AND COLLATERAL REQUIRED

Capital Stock of Firms

Collateral Taken by FIs

Source: World Bank Enterprise Surveys

collateral gap
Collateral Gap

Mismatch between assets owned by companies and collateral required

Lack of adequate collateral

Capital Stock of Firms

Collateral Taken by FIs

Credit Application Rejected: Insufficient Collateral

Did not apply: Collateral Requirements Too High or Thought Application Would be Rejected

Source: World Bank Enterprise Surveys

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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

Not Interested

Not their type of business

No competition in the lending markets

Revenue from other sources (TB)

Have never done that type of financing

Do not have the staff with skills

Dysfunctional Registry

No Registry

Lack of publicity

No transparency

Restrictions on types of assets

Lack of clear creditor priority

Enforcement issues

current project portfolio
Current project Portfolio

EAST ASIA & PACIFIC

China

Lao PDR

Mongolia

Philippines

Vietnam

MENA

Afghanistan

Jordan

Lebanon

Palestine

Morocco

Egypt

Yemen

UAE

AMF

LAC

Colombia

Haiti

Costa Rica

ECA

Azerbaijan

Belarus

Moldova

Tajikistan

Uzbekistan

SOUTH ASIA

Sri Lanka

Nepal

India

AFRICA

Ghana

Rwanda

OHADA

South Sudan

Sierra Leone

Liberia

AFRICA (Nigeria, Guinea, Coted’Ivoire, Togo, Zambia)

PIPELINE

slide15

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

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%)

slide16

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

slide17

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

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 secured transaction reform in asia and latin america
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
slide23

THANK YOU!

Reginald Chijioke Nworka

IFC Global Secured Transactions & Collateral Registries Program

Rnworka@ifc.org