Credit Infrastructure Modernisation: Two down, more to go
The recently passed laws on credit registration and reporting are very big steps in the improvement of Nigeria’s business environment. These laws have very serious positive implication on the conduct of Nigeria’s business community. First, they address very squarely, some major credit issues for SMEs. Second, they will help to address the question of difficult experiences summarized in the Ease of Doing Business ranking of the country.
One of the challenges faced by the business community is the existence of outdated credit infrastructure – laws, rules and regulations that guide business conduct. Some countries still operate rules and regulations that predate their independence from their colonial masters. Nigeria is among them. When confronted with modern ways of doing business those rules and regulations become obstacles to the free flow of business. While we commend the National Assembly for passing the twin Acts of Collateral Registration and Credit Reporting, one still wonders why these laws took so long to come. However, as the saying goes, it is better late than never.
The credit environment in Nigeria has been made so unfriendly both for lenders and borrowers by unfriendly laws, that outsider wonder how we get by. Now that we have realized the need for modernising them, let us not relent. We should go all out and amend every law that is a misfit in the modern world, and in Nigeria in particular. One of the problems that the MSMEs face, which the recently passed laws will help to address, is the lack of bankable assets among players in the sector. The assets we call unbankable in Nigeria have been very bankable for a long time in other jurisdictions because they have modern laws, rules and regulations of doing business.
There is need for our Legislature to be less interested in the current superiority contest with the Executive and do more of legislation. They are often embroiled in unnecessary power struggle with the Executive. Valuable time is being wasted on the debate on budgetary powers. I think it is those who know the revenue of an entity that should project its expenditure. Not strangers. And one wonders what would happen if the Judiciary asserts itself in like manner. A good legal regime should be dynamic – responsive and flexibleas the needs of society evolve.
In a 2016 report on the steps, time and cost of registering property in different countries, the World Bank says that Nigeria has over 12 procedures (steps) for property registration. The same report shows that South Africa has only 6 steps, Burkina Faso has only 4, Burundi has 5 and Chad has only 6 steps. Of course, our neighbours, Ghana, which opened what became Africa’s first collateral register in 2008, had only 5 steps for the registration of property. In terms of time, it takes about 77 days to complete property registration in Nigeria. This is absolutely long.
Even with the well-known aggressiveness and vibrancy of the Nigerian informal sector, it took us close to 10 years to do what Ghana, with a relatively less vibrant informal sector, did since 2008. Well, better late than never may be a normal response to this kind of situation but that cliché appears to have a defeatist element. People who have access to what they need to achieve should not hide under any such cliché to under-perform. We should not always wait for other less endowed countries to lead paths of great achievement while we reluctantly follow.
The reform of the credit infrastructure in Nigeria is long overdue. The recent laws on Credit Reporting and Collateral Registry will however not solve all the problems. We therefore need to profit from the current momentum by taking further steps to improve reform laws that are inhibitive of the business environment. One of such laws is the controversial Land Use Act of 1978. If the essence of law is to protect the rights and liberties of the people, then the Land Use Act has failed in those regards. If anything, it has ripped off the rights from the people and trampled on their liberties.
By vesting all land in a state on the State Governor, the Land Use Act has become the undisputed icon and hatchery of the corruption that has turned a giant like Nigeria into a Lilliputian. What one finds is that corrupt governors (and they are in the majority) have cornered all the choice lands in their states and shared them out to their friends and loyalist to develop as they like and for their private us. Whole communities have been rendered hopeless as their only source of livelihood is taken away from them and given to strangers for private purposes. These lands are forcefully acquired, often without any meaningful compensation, ostensibly for “overriding public interest”. In Nigeria, the term public interest has been bastardised and corruptly used to define the personal interest of those in authority. Essentially, it has become absolutely difficult to say that this law has improved the life of the majority of Nigerians.
Apart from the corrupt application of the Land Use Act for the benefit of a few privileged people, it has also served to deprive poor farmers of the only asset they could have used to secure loans. The Act prohibits anyone from doing any such thing without the approval of the governor of the state. Obtaining Governor’s consent is not a simple matter, especially for the largely uninformed and illiterate farmers and rural land owners. As a result, lenders are afraid of dealing with land as security for loans and, more especially, undeveloped land. So landowners have been turned to tenants and deprived of probably the one and only collateral they could have used to get bank loans.
The Presidential Enabling Business Environment Committee is on a mission to change the current debilitating business environment. The speed with which the Acting President signed the two laws on collateral and credit registration speaks volumes. They deserve not just our commendation but support to do more. Apart from the Land Use Act, which constitutes the other leg of our credit infrastructure that should not escape the current reform drive; another area is our Bankruptcy Laws. These are also in need of a review to bring them in line with current realities.
Emeka Osuji