5 things to know about the Nigerian Collateral Registry

Getting a business off the ground is no small feat. Often, the biggest hurdle for aspiring entrepreneurs is securing funding.

Traditional loans from banks typically require collateral – an asset the borrower pledges to forfeit if they fail to repay the loan. This collateral is usually land or property with a verified title, a requirement that can be a major roadblock for many small and medium-sized enterprises (SMEs).

Collateral represents a safety net for lenders, ensuring they can recoup their losses if a loan defaults. However, for SMEs, especially those in their early stages, land ownership might not be a reality, and it can be difficult to secure a loan without collateral.

This creates a catch-22 situation – they need capital to grow, but traditional lenders require assets they might not possess. Here’s where the Nigerian Collateral Registry (NCR) steps in.

It’s a central registry for helping businesses overcome the collateral hurdle and secure loans more easily. Let’s explore the five key things you need to know about the NCR and how it can empower your business.

1. The Nigerian Collateral Registry recognizes the value in movable assets

The Nigerian Collateral Registry (NCR) breaks down a major barrier for SMEs by allowing them to use the value they’ve built within their businesses to secure funding. This doesn’t just mean land and property anymore.

Instead, the NCR recognizes the value in moveable assets which has opened a treasure chest of possibilities for businesses. This means businesses can now leverage their existing inventory, equipment, machinery, and even account receivables (money owed by customers) to secure loans.

There are approximately 37 million MSMEs in Nigeria that can benefit from the new collateral registration regime to access the capital needed to grow their businesses.

For a budding restaurant owner, their ovens, refrigerators, and even the initial stock of ingredients can now act as collateral. A fashion designer can use their sewing machines and fabric inventory to access a loan to purchase more materials and launch a new clothing line.

2. The NCR operates as a user-friendly, web-based system

The Nigerian Collateral Registry (NCR) is like a user-friendly online filing cabinet for loan agreements. It cuts through the red tape and makes it quick and easy to register claims on movable assets used as collateral for loans. Here’s how the NCR benefits both lenders and borrowers:

Lenders get more confidence: With the NCR, lenders have a clear record showing their right to the collateral if borrowers don’t return their loan. It reduces the risk for lenders and makes them more willing to offer loans to businesses using movable assets as security.

Borrowers get more options: With the NCR, movable assets like equipment or inventory become valuable security for loans. This opens doors for borrowers who might not have qualified for loans before. Borrowers can also clearly track their assets.

3. The system is built for ease

The registration process is straightforward and efficient. With a few clicks, lenders can record their claim on the movable assets used as collateral.

The NCR also allows lenders to easily search for any existing claims on movable assets before finalizing a loan. This clear picture helps them make informed decisions about potential borrowers and the risks involved.

The system allows the following online operations:

• Processing of client account registration
• Processing registration of financing statement
• Processing of client postpaid requests
• Processing of search requests
• Processing payments
• Processing of change on a financing statement (amendment, transfer, renewals and subordination)
• Processing of cancellation
• Generation of reports
• Application administration
• Application configuration

4. The NCR is backed by the Secured Transactions in Movable Assets Act (STMA)

Before the STMA existed, the Central Bank of Nigeria (CBN) had set some guidelines for how the NCR would work.

The STMA took these guidelines and turned them into a formal law in 2017. This law provides a clear and reliable set of rules that everyone who uses the NCR must follow.

At its core, the STMA aims to make it easier for businesses to use movable assets as security for loans. The Act streamlines the process, reduces risk for lenders, and provides a clear legal framework for resolving disputes. So, ultimately the credit market is built on trust and transparency between lenders and borrowers.

It defines movable assets broadly to include tangible property like vehicles, equipment, inventory, and intangible property like accounts receivable and intellectual property rights. The STMA requires that assets that form the collateral must be adequately described, leaving no room for ambiguity.

5. It has public access but restricted registration

This two-pronged approach – public access for search, but restricted registration – is an important design feature of the Nigerian Collateral Registry.

The NCR is accessible to the public for searching and verifying any existing security interests. Before you search the registry for registrations, you must first know how many searches you will make. Then, pay the fees through Interswitch WebPay and use the payment security code issued to you to search for Registrations and then click the Search Tab on the Homepage to go to the Search page and perform a search.

But, only financial institutions that are registered and regulated by the Central Bank of Nigeria (CBN) are allowed to register financing statements in the registry. This restricted registration process ensures the registry is controlled and maintained by authorized lenders, rather than being open to the general public.

In registering a security interest over movable assets, a financing statement is typically filed with the NCR and a unique registration number is generated and assigned to it. The NCR records the date and filing time of each financing statement to determine priority/ranking.

After registering the financing statement, the NCR issues a confirmation statement to the creditor, who will notify the grantor/borrower of the same.

Once registered, the lender’s security interest in the movable assets takes priority over any unregistered claims. So, lenders have greater peace of mind, knowing they have a stronger legal claim to the collateral if a loan defaults.

The Nigerian Collateral Registry is a springboard for business growth

Dismantling the traditional barriers to accessing credit gives way to a new generation of entrepreneurs and the impact goes beyond individual businesses.

When SMEs have access to funding, they can grow their operations, hire more people, and contribute to a stronger overall economy for Nigeria. The domino effect leads to a bigger national economy (GDP), more tax revenue for the government, and a more innovative and dynamic business environment.

The NCR works best when everyone works together. This includes banks, government regulators like the Central Bank of Nigeria (CBN), and businesses themselves. The more people who use the NCR, the stronger it becomes and the more it can help the Nigerian economy.