CBN simplifies collateral requirements for SMEs

The Central Bank of Nigeria has unveiled plans to simplify the collateral requirement for lending to Micro, Small Medium-Scale Enterprises.


This move, according to the Director, Development Finance Institution, CBN, Mr. Paul Eluhaiwe, will enable the MSMEs to use moveable collaterals to secure credits from financial institutions.

Eluhaiwe, who said this while addressing journalists at the end of the MSME financing conference and D-8 workshop in Abuja on Friday, added that the policy would commence next year.

He said the initiative became imperative since most banks depended on fixed collateral security to lend to the MSMEs.

Working with the International Finance Corporation, he said the CBN would put in place strategies that would ensure the successful implementation of the initiative.

Eluhaiwe said, “We will look at a situation where institutions that are rated in Nigeria will have increased substantially. That’s very important to us.

“Another issue is the collateral for entrepreneurs to access microfinance services, particularly loans. Most banks are not ready to give SMEs facilities and banks depend only on fixed collateral in this country.

“We want to be able to use movable collateral. We are working with the IFC. I have secured the approval of the CBN and we will ensure that the collateral registry is a movable collateral and we will be able to use it beginning from next year in this country.”

He said the initiative would help to ensure that funds were made available for entrepreneurs to grow their businesses at cheap rates.

Eluhaiwe said, “If this is done, operators will be able to operate because there will be funds and capacities will be built to create sustainability in the sector.

“The entrepreneurs, who are supposed to benefit, with movable collateral, they will have access to more financial services.”

The Governor of the CBN, Mr. Lamido Sanusi, had during the introduction of the N220bn MSME Intervention Fund, said commercial bank loans to the MSMEs had declined from 7.5 per cent in 2003 to only about 0.14 per cent in 2012.

He also said about 80 per cent of the MSMEs were excluded from the financial markets.

Sanusi said, “In 2012, commercial bank loans to the SMEs dropped at an exponential rates; analysis of the annual trend in the share of commercial bank credit to small scale industries indicates a decline of about 7.5 per cent in 2003 to less than one per cent in 2006, and a further decline in 2012 to 0.14 per cent.”