Financial inclusion plainly means that individuals and businesses have access to affordable financial products and services that meet their needs; transactions, payments, savings, credit and insurance – delivered in a responsible and sustainable way. It encompasses service delivery to sections of disadvantaged and low-income segments of society, in contrast to financial exclusion where those services are not available or affordable.
For first steps, access to transaction account (TA) allows people to store money, send and receive payments. A TA serves as a gateway to other financial services. Easy access to TAs is the focus of the World Bank Group’s Universal Financial Access (UFA) 2020 initiative.
Two emblems of financial inclusion is the bank verification number (BVN) and Mobile Money which uses mobile phones for financial transactions. If well implemented, it can accelerate financial inclusion, reduce transaction costs, minimise banking dangers and facilitate a cashless society. It allows users to deposit, withdraw and transfer money, as well as easily pay for goods and services with their mobile phones. But neither of these are loan channels.
However, to facilitate access to capital, Collateral Registries operate to ensure secured lending, i.e., credit transactions where a creditor holds an interest in a debtor’s movable property such as inventory, account receivables, livestock, equipment, and machinery, as collateral to secure a loan or a debt obligation.
As the World Bank statistics show, there is a latent demand for credit on the Nigerian lending landscape. Of a total adult population of 87.9 million people, only 37.8m (43%) are “financially served.” There are 25 million banked people with 88% of them operating savings accounts. The total borrowing population is 16 million people. A breakdown shows that 9.8 million people borrowed from families, 1.6 million people borrowed from banks while over 30% 0f the borrowers did so to start or expand business. In all, a meagre 1.3 million adults possess insurance.
Interestingly, the stats from CBN are alarming! More than 200 million formal and informal micro, small and medium-sized enterprises (MSMEs) in emerging economies lack adequate financing to thrive and grow. MSMEs cite a lack of collateral and credit history, and business informality as main reasons for not having an account. Around 2 billion people do not use formal financial services and more than 50% of adults in the poorest households are unbanked. Financial inclusion is a key enabler to reducing poverty and boosting prosperity via the operation of an efficient collateral and registry. WBG President Kim has called for Universal Financial Access (UFA) by 2020. “We’re scaling up support to reach an additional 1bn people, and are working with partners to achieve UFA.”
To deal with this poor records, as stated in the Collateral Registry Regulations, 2014 Issued by The Governor of the Central Bank of Nigeria, Part III, Regulation 9; the CBN, working through the financial houses, has employed a robust lending framework via collateral registry to increase the availability of credit to consumers and small businesses.
Moreover, without a viable collateral registry practice, the credit reporting system and the verification number (BVN) provides incomplete cycle of operation. A major reason for the BVN was to create a biometric system to bring unbanked Nigerians into the system. Since most of them are in rural areas and are “barely literate”, the BVN would allow them to operate accounts without having to sign cheques or passbooks. This would also allow them use their fingerprint, even at ATMs, for banking business, thus extending lending opportunities to responsible rural dwellers irrespective of literacy level.
So anyone can access it on the go. But for online verification, a prospect simply load up a name with BVN – in case of an individual. For Corporate cases, a registration number is required. Again, if the proposed collateral were a motor vehicle or equipment, then such searches are done using the vehicle or equipment’s serial (chassis/VIN) number. The lender can then proceed to register its security interest in the collateral and make the loan available to the borrower. All of these are possible if there was no prior security interest registered against the proposed collateral.
The registry supports MSME lending as a new economic agenda which diversifies the economy, grow a production focused economy and improve wellbeing and prosperity. This results in customer satisfaction and loyalty which then changes market situation by injecting e-commerce, mobile money and fintechs.
Interestingly, in industrialized countries, borrowers with collaterals get 9 times the level of credit given their cash flow compared to collateral-less borrowers. They also benefit from longer repayment periods (11 times longer) and significantly lower interest rates (50% lower). The collateral registry culture cultivates the buffer which helps increase access to credit. It aids the borrower to give publicity to security interests that may exist in identified collateral.
By TUNJI ANDREWS
