Although Nigeria maintains its 15th position on World Bank list of countries where businesses can easily access financing, the country has, nonetheless, been upstaged by previously backward nations. According to the Ease of Getting Credit report for 2020 released recently by the World Bank, Azerbaijan, Jordan, and Tajikistan, which were previously ranked 22nd, 134th and 122nd have risen to 1st, 4th and 11th respectively, while Nigeria remains stagnated in its former position.
The Ease of Getting Credit scope covers areas such as depth of credit information available in different countries, the level of secured transactions and non-possessory security interest, and the strength of secured transactions system.
The implication of Nigeria’s unchanged ranking for MSMEs can be dire. However, it shows the effect of the various reforms put in place by the Central Bank of Nigeria to force financial institutions to channel funds to small businesses are yet to gain traction.
Since 2017 when the country made a significant stride in the areas of ease of getting credit, several legislative and regulatory reforms have been embarked upon at different levels. Such reforms were structured around credit information based on accurate data, secure transactions in movable assets (machinery, technology compared to real estate), creditor rights and insolvency, regulatory payment services and agency services, consumer and data protection, financial education, digital channels and telecommunications partnership.
Truly the reforms have opened up the financial sector to some extent. Unfortunately, “cumbersome documentation procedures and requirements”, says Proshare, a leading industry platform, still plague the effectiveness of the key targets of the reforms.
Furthermore, citing Proshare, collateral and accessibility have become impediments to securing loans for small businesses. The banks still value real estate over movable assets as collateral. In addition, most loans come with 30% interest rate which are overall non-feasible for young businesses striving to make their marks in an austere operating environment.
Hence, Nigerian banks still prefer to invest in risk-free securities such government bonds instead of extending loans to MSMEs.
It is expected that the last rating by Moody’s and current ranking by World Bank will help the Central Bank of Nigeria and related agencies to get back to the drawing board, and proffer newer and better ways to make credit more accessible to businesses in Nigeria.