One of the high points of President Buhari’s administration is the establishment of the Presidential Enabling Business Environment Council (“PEBEC” or “the Council”), a dedicated council chaired by Vice President Yemi Osinbajo, with the sole focus of removing bureaucratic constraints to doing business in Nigeria. Since the inauguration of the Council in June 2016, it has introduced a number of structural reform initiatives to make it easier to start and grow business in the country, particularly for Micro, Small and Medium Enterprises (MSMEs).
On February 21, 2017, PEBEC approved a National Action Plan to be implemented across three priority areas — Entry and Exit of goods; Entry and Exit of people and Government Transparency and Procurement — over 60 days. The 60 days ended on April 21, 2017 with 70 percent of the Targets achieved while two bills (“Secure Transactions in Movable Asset Act’ and “The Credit Reporting Act”) were forwarded to the National Assembly with the same ease of doing business focus. Both bills, aimed at facilitating affordable credit access for MSMEs, were speedily passed in the National Assembly and recently signed into law by Acting President Osinbajo.
Access to credit remains a major hindrance to the development of the private sector in Nigeria as most MSMEs either have insufficient credit history for reasonable judgement or unacceptable collateral to secure loans. To buttress this, the Minister of Finance, whilst justifying the rationale behind establishing the Development Bank of Nigeria, noted that MSMEs contribute about 48.5% to the Gross Domestic Products (GDP) of Nigeria but have access to only about 5.0% of lending from Deposit Money Banks (DMBs). The “Secure Transactions in Movable Asset Act 2017” otherwise known as the “Collateral Registry Act “seeks to address this anomaly. The act enables MSMEs to register their movable assets such as motor vehicles, equipment and accounts receivable in the National Collateral Registry, which could then be used as collateral for accessing loans from bank. We believe successful implementation will go a long way in improving access to credit.
The “Credit Reporting Act 2017” also complements the “Collateral Registry Act” as it allows credit information to be shared between lenders and Credit Bureaus in addition to other establishments who offer similar credit services such as FinTechs, telecommunication companies and retailers. The Credit Bureau gathers information on the credit ratings of individuals and makes it accessible to institutions who offer credit services for the purpose of determining credit-worthiness of any applicant for credit extension. In our view, the Credit Reporting Act would, to a large extent, improve credit information database available to lenders and could also make loan origination processes more efficient by bridging the information asymmetry gap between borrowers and lenders.
The commitment and vigor with which the ease of doing business objective is being pursued is quite commendable, and if the current drive to implement reforms is sustained, we expect to see more of the hurdles which constrain operating performance of the private sector to be scaled.