By Miftaudeen Raji

Nigeria ranks 131st in the World Bank’s Ease of Doing Business index, with access to credit continuing to be a significant challenge for businesses. Despite ongoing government efforts to improve the business climate, securing loans remains difficult for Nigerian enterprises, largely due to stringent regulatory requirements.

Ibrahim Hassan, a leading finance professional in the country, shared insights on the barriers to credit access in Nigeria. Hassan, who advises multinationals, investment banks, development finance institutions, and blue-chip companies, explained that the current banking system limits Nigerian banks’ ability to offer unsecured credit. Banks can only provide such credit under Central Bank of Nigeria (CBN) collateralization regulations or with prior CBN approval. As a result, loans are largely required to be backed by security, which raises borrowing conditions for businesses.

Under the current regulatory framework, security documents must be stamped in Nigeria to be enforceable, incurring ad valorem duties of 0.375% of the facility sum. Corporate borrowers also face additional fees, including 0.35% of the facility amount for registering security documents with the Corporate Affairs Commission (CAC). This, combined with sector-specific registries, further escalates borrowing costs. For small and medium-sized enterprises (SMEs), these high costs limit access to credit.

Hassan, who has experience advising on transactions across Africa, noted that countries like Ghana, Kenya, and South Africa impose lower security registration fees, making credit more accessible. While some Nigerian lenders may agree to pay stamp duties and registration fees for only a portion of the facility sum, this exposes lenders to the risk of losing priority to other creditors, prompting many lenders to insist on full compliance.

The introduction of the Secured Transactions in Movable Assets Act (STMA) in 2017 aimed to simplify secured transactions involving movable assets, with nominal fees for registration at the National Collateral Registry (NCR). However, the need to register at the CAC negates the STMA’s benefit, complicating the process and increasing costs for borrowers.

Hassan proposes several reforms to address these challenges:

1. Reduction of Stamp Duty Rates: Lowering stamp duty or exempting micro, small, and medium-sized enterprises (MSMEs) from ad valorem duties would enhance credit accessibility.
2. Streamlined Registration Process: A single registration process at the CAC would reduce duplication and improve efficiency.
3. Adoption of Flat Fees: Introducing flat registration fees, as seen in other countries, would provide a more predictable cost structure for borrowers.

Hassan believes that these reforms are crucial for unlocking credit access, driving economic growth, and enhancing Nigeria’s global business competitiveness.