Regulation or reform? – Evaluating the Central Bank of Nigeria’s role in implementing the Reform of Personal Property Security Law in Nigeria†

Abstract

The Secured Transactions in Movable Assets Act, 2017 (STMA or Act) was enacted by Nigeria’s National Assembly to, amongst others, stimulate lending to micro, small and medium enterprises. The STMA, amongst others creates a collateral registry and assigns its supervision to the Central Bank of Nigeria (CBN), Nigeria’s foremost financial regulatory agency. This article evaluates the CBN’s role under the Act and contends that having regard to its regulatory focus, the assignment of this responsibility could jeopardize the realisation of the Act’s objective of stimulating funding to small business entities.

Disclosure statement

No potential conflict of interest was reported by the author(s).

Notes

1 For a discussion of the importance of small business entities in stimulating states’ economic growth see L Gullifer and I Tirado, ‘Financing Micro-businesses and the UNCITRAL Model Law on Secured Transactions’ (2017) Oxford Legal Studies Research Papers 1.

2 According to the Nigerian National Policy on Small and Medium Scale Enterprises, over 90% of Nigeria’s business entities are small and medium scale enterprises, providing a means of livelihood to approximately 60 million people. See Small & Medium Enterprises Development Agency of Nigeria (SMEDAN), ‘Federal Republic of Nigeria: Draft Policy on Micro, Small and Medium Enterprises’ 2015 available at <https://smedan.gov.ng/images/PDF/NATIONAL-POLICY-ON-MSMEsNew.pdf> (last accessed 22 January 2020).

3 Nigeria adopted English law as a consequence of British colonial rule in Nigeria which ended in 1960. By s. 45 of the Interpretation Act Cap 89, 1958, the English common law and doctrines of Equity, together with statutes that were in force in England as at 1st of January 1900 were adopted in Nigeria subject to local enactments. This remains the case to date. Consequently, English statutes enacted prior to, and including the limiting date are considered federal Nigerian statutes for the purpose of adoption and English cases are of persuasive authority in Nigerian courts, especially on novel issues. For a detailed discussion of the relationship between English and Nigerian law. See AEW Park, Sources of Nigerian Law (1st ed. Sweet and Maxwell 1963), ch 1.

4 For a discussion of the shortcomings of the various types of secured transactions under the common law, see A Duggan and D Brown, Australian Personal Property Securities Law (2nd edn, LexisNexis Butterworths, 2016), chap 1.

5 Canada, New Zealand, Australia and Malawi are examples of countries that have initiated new security regimes in the form of Personal Property Security Acts.

6 One way by which the Act does this is that by recognizing the unitary concept of security interests, which encompasses the various categorisations under the common law and conferring on holders equivalent rights subject to the time of registration of such interests, it avoids the pitfalls associated with categorisations in which similar security interests offered different outcomes based on sheer nomenclature. For a detailed discussion of the problem of categorisation of interests under the common law and how the STMA seeks to sidestep such difficulties, see G Esangbedo, ‘Secured Transactions in Moveable Assets Act, Company Charges and Funding Micro, Small and Medium Enterprises under Nigerian Law’ (2020) Journal of African Law 1.

7 S. 1 of the STMA contains a list of the Act’s objectives. Apart from the stimulation of funding to MSMEs, these objectives include facilitate access to credit secured by moveable assets and the creation of a collateral registry for the systematic management of security interests; objectives that generally conform to those of other similar reforms.

8 International Finance Corporation, ‘Making Security Interests Public: Registration Mechanisms in 35 Jurisdictions’ 7 available <https://www.doingbusiness.org/content/dam/doingBusiness/media/Special-Reports/Making-Security-Interests-Public.pdf> (last assessed on 21 April 2020).

9 Emphasis mine.

10 See O Olanipekun, ‘Banking Regulation & Supervision: Concept, Theory & Rationale’ in O Olanipekun (ed), Banking: Theory, Regulation, Law and Practice (Au Courant 2016), 3.

11 It is trite law that a public decision maker will often make decisions within the framework of a statute that will have either delegated a power to it or imposed a duty to act. In order words, as a statutory body, the CBN should act within the functions defined for it by its enabling statute. For a discussion of statutory powers exercisable by statutory bodies see generally P Leland and G Anthony, Textbook on Administrative Law (8th edn, OUP, 2016), 192. See also the Central Bank of Nigeria Act 2007, s.1.

12 See T Hutchinson, ‘Doctrinal Research: Researching the Jury’ in D Watkins and M Burton (eds) Research Methods in Law (Routledge, London and New York, 2013) 7, 11.

13 D Ibbetson, ‘Historical Research in Law’ in P Cane and M Tushnet (eds), Oxford Handbook of Legal Studies (2003) 863, 864.

14 Y Chevrel, La Literature compare (Presses Universitaires de France, 5^th edn, 2006), 3.

15 See n 2.

16 Ibid.;

17 T See ‘National Policy’ (n 2) para 1.3.

18 Emphasis mine.

19 ‘National Policy’ (n 2), para 1.4.1.

20 Ibid.

21 Ibid.

22 Ibid.

23 Ibid.; it is suggested that this comment is made in contrast to the position of micro enterprises.

24 Ibid.

25 Ibid., para 1.5.

26 For example, the cost of purchasing a single agricultural equipment such as a tractor usually exceeds GBP20,000 and even where instalment payments are permitted, the respective instalments may exceed what these impecunious entities can comfortably afford from their meagre earnings.

27 Some of these include the private costs of providing steady electricity, private security and communal costs of maintaining roads and other infrastructure which are still significantly neglected by the government. For a discussion of the state of infrastructure in Nigeria see V Foster and N Pushak, ‘Nigeria’s Infrastructure: A Continental Perspective’ (A Study of the African Infrastructure Country Diagnostic by the IBRD, 2011).

28 The provision of collateral is just one of the conditions set by institutional creditors for obtaining loans. The usual conditions for term loans and advances to SMEs include proof of identify such as international passports and several documents evidencing incorporation as a company; this potentially rules out most micro and small enterprises.

29 However, the importance of such classification by the body charged with supervising MSMEs lies in the fact that the strategies it would adopt to combat the identified problems will likely be influenced by how it perceives the problem. Thus, an incorrect definition of the challenges results in poorly defined objectives, which in turn can only result in poor strategies. A good example of this is that although lack of finance is consistently seen as a militating factor to MSME growth, the real problem is often that MSMEs are unable to meet the conditions set by financial institutions to access loans and not that funds are unavailable. Under such circumstances, it is suggested that defining the problem as that of a lack of finance is misleading and could result in the proliferation of schemes that ultimately fail to resolve the problem.

30 The policy comprehensively identifies the various initiatives by government to support MSMEs since the mid-1960s. In all, a total of 15 schemes, most of which were driven by the CBN are identified. These initiatives range from the provision of technical extensive services such as technical appraisal of loan applications (through the Industrial Development Centres set up by government) to the provision of vocational skills (under the National Directorate of Employment) to the setting up of financial institutions with the sole objective of providing easy access to credit to MSMEs (eg the establishment of the Nigerian Industrial Development Bank in 1964). Some of the more recent initiatives include the Microfinance Policy launched in 2005 resulting in the establishment of new Microfinance banks charged with the responsibility of providing soft loans to qualifying MSMEs. See SMEDAN, ‘National Policy’ (n 2), 20.

31 Repayment of loans e.g. has obviously not been the priority of these entities considering the high rate of default on loans taken by MSMEs eg a recent review of repayment by SMEs on loans disbursed under the Supervised Credit Scheme of Nigeria Agricultural Cooperative and Rural Development Bank (NACRBD) in Kaduna State, Nigeria found that of a total sum of NGN88.7 million disbursed under the scheme between 2004 and 2006, only NGN26.3 million was repaid by borrowers leaving a total of about NGN62.4 million plus interest outstanding. See generally AO Sambo et al., ‘A Critical Evaluation of the Legal Framework for SMEs’ Loan Redemption in Nigeria’ (2014) 22 IIUMLJ, 56.

32 See Companies and Allied Matters Act, Cap C 20, Laws of the Federation of Nigeria 2004, s. 178(1).

33 See R Kohn and D Morse, ‘UNCITRAL: The UNCITRAL Model Law on Secured Transactions’ [2016] The Secured Lender, 48.

34 For detailed description of what is considered an ideal secured transactions system see e.g. Secured Transactions Law Reform Project, ‘Policy Paper’ (2016) available at http://securedtransactionslawreformproject.org (last accessed on 20 April 2020).

35 Regulation No 1, 2015.

36 Although the Regulation remains in force as it has not been repealed by the STMA or any other law in Nigeria, its suitability as a means of achieving the reform of Nigeria’s personal property security law has been questioned being only a CBN Regulation as opposed to a government statute. See generally W Iheme and S Mba, ‘Towards Reforming Nigeria’s Secured Transactions Law: The Central Bank of Nigeria’s Attempt through the Back Door’ (2017) Journal of African Law 1.

37 See UNCITRAL, UNCITRAL Legislative Guide on Secured Transactions (United Nations, 2010) 1.

38 This model, pioneered by Article 9 of the Uniform Commercial Code of the US has been adopted by Canada, New Zealand, Australia, Malawi amongst others in reforming their personal property security laws.

39 However, this objective is not backed by specific or special provisions solely applicable to MSMEs. The Act fails to mention MSMEs anywhere other than in s 1 which contains its objectives.

40 See para 3 above.

41 Based on the National Policy on MSMEs, approximately one third of Nigerians earn their livelihood through MSMEs, with an even greater number of Nigerians dependants on these income earners. See para 3b above.

42 UNCITRAL, UNCITRAL Model Law on Secured Transactions (United Nations, Vienna, 2016).

43 See s 3(3) of the Regulation.

44 See STMA, s 2(3).

45 See G Esangbedo (n 6).

46 MSMEs’ difficulty in obtaining unsecured loans is often attributable to the CBN’s Prudential Guidelines to banks e.g. s. 8 of Central Bank of Nigeria, ‘Prudential Guidelines for Deposit Money Banks in Nigeria’ 2010 which whilst obligating banks to have a comprehensive SME financing policy, nevertheless directs banks to amongst other conditions determine an appropriate security for SME loans, and to comprehensively determine repayment capacities and modalities. The Prudential Guidelines is available at <https://www.cbn.gov.ng/out/2010/publications/bsd/prudential%20guidelines%2030%20june%202010%20final%20%20_3_.pdf> (last assessed on 16^th April 2020). For a comprehensive discussion of the challenges faced by SMEs in their quest for bank loans in Nigeria see O Oliyide, ‘Law, Credit Risk Management and Bank Lending to SMEs in Nigeria’ [2012] 38 CLB 653.

47 The registrar has the responsibility of supervising and administering the operations of the registry. See STMA, s. 10(3).

48 This is similar to the provisions of the CBN’s Regulation 1, which provides that the Collateral Registry shall be designated, maintained and operated by the Central Bank of Nigeria. See s. 9(1) of the Regulations.

49 STMA, s 10(2).

50 See s. 9(3) of Regulation 1.

51 The STMA contains no provisions either repealing Regulation 1 or subordinating its provisions to the STMA.

52 STMA, s 41(3).

53 The Collateral Registry’s significance is underscored by the provisions of s. 11 of the STMA which makes the Registry a general reservoir of information on security interests. See also text culminating in n 8 above.

54 See Small and Medium Scale Industries Development Agency (SMEDAN) (Establishment Act) No. 16 2003.

55 SMEDAN possesses vast statutory powers over MSMEs which include that the Agency shall be responsible for (a) initiating and articulating ideas for small and medium scale industries policy thrusts. (b) serving as a vanguard agency and focal point for rural industrialisation. poverty alleviation and eradication; technology acquisition and adaptation, job creation and sustainable livelihood. (c) promoting and facilitating development programmes, instruments and support services to accelerate development, modernisation, networking and linkage of small and medium scale industries ; (d) mobilising internal and external resources, including technical assistance for small and medium scale industries, their support institutions; trade associations, and non-governmental organization; (e) carrying out such other activities connected with or incidental to the other functions of the Agency in order to promote government policies in or outside Nigeria; See generally SMEDAN (Establishment) Act ibid, ss 8, 9 and 23.

56 See SMEDAN Establishment Act (n 54), s. 8.

57 It should be noted that SMEDAN is an agency of equivalent status to the CBN both being statutory corporations under the law. Cf. s 1(2) of the SMEDAN Act, which establishes and defines its status with the corresponding provision under the CBNA, ss 1(2) and (3).

58 The CAC was established in 1990 following the enactment of the Companies and Allied Matters Act under which it was created.

59 STMA, s. 2(1)(c).

60 See G Esangbedo (n 6).

61 This problem is worsened by the fact that despite imposing the responsibility to supervise the collateral registry on the CBN, the STMA contains no provision precluding other agencies, especially SMEDAN, from performing similar data collection, retention and privacy use akin to those assigned to the CBN by s 10. As a result, problems relating to data management strategy, administration and use from different agencies guided by significantly different objectives could mar the realization of the objectives of reform.

62 For example, the preamble to the CBN’s Regulation 1, the precursor to the STMA justifies the CBN’s enactment of the Regulation as follows: ‘In exercise of the powers conferred upon me by the Central Bank of Nigeria Act, 2007 and Section 57(1) of the Banks and Other Financial Institutions Act, Cap B3 Laws of the Federation of Nigeria, 2004 (as amended) and in order to improve access to finance for Micro, Small and Medium Enterprises (‘MSMEs’) while maintaining a strong prudent lending policy to promote Sound Financial System in Nigeria, I, Godwin Ifeanyi Emefiele, Governor of the Central Bank of Nigeria, make the following Regulations ….’ The Nigerian legislature might also have been influenced by this preamble in assigning to the CBN the responsibilities under s.10 of the STMA.

63 Cap B3 Laws of the Federation of Nigeria 2004.

64 These powers include the powers to grant, vary and revoke banking licences, approve the operation of foreign banks amongst others. See generally BOFIA, ss 3, 5 and 8, although other specific powers regarding financial institutions are interspersed throughout the Act.

65 CBNA, s 2.

66 The CBNA provision i.e. s. 51 empowers the Board (as opposed to the Governor) to make and alter rules and regulations for the good order and management of the CBN. It is submitted that this clearly refers to rules of internal management of the CBN that cannot justify the making of a far-reaching enactment like Regulation 1.

67 Ibid.

68 BOFIA’s objective as stated in its short title is ‘to regulate banking and other financial institutions and for matters connected therewith’. See BOFIA (n 63). Although arguable that a Regulation on secured transaction seems fitting to be considered a matter incidental to banking, it is however distinguishable from an Act that deals with regulation of the institutions rendering banking and financial services. Thus, while the Regulation addresses the reformed legal structure for secured transactions, BOFIA provides rules which banks and financial institutions should comply with and for which the CBN may hold them accountable.

69 Sani Dododo v Economic and Financial Crimes Commission [2013] 1 NWLR (Pt. 1336) 468.

70 ibid.

71 See H Wade and C Forsythe, Administrative Law (11th ed., OUP 2014), 27.

72 See n 35.

73 The CBN however classifies financial stability as a supervisory responsibility driven by the Financial Policy and Regulation Department with the mandate of developing and implementing policies and regulations aimed at ensuring financial system stability. See CBN, ‘Financial Stability’ available at <https://www.cbn.gov.ng/AboutCBN/Dir-FSS.asp#ofid> (last assessed on 16 April 2020).

74 International Monetary Fund, ‘Factsheet on Financial System Soundness’ available at <http://www.imf.org/en/About/Factsheets/Financial-System-Soundness> (last assessed on 16 April 2020).

75 Ibid.

76 For a comprehensive discussion of the Okigbo Panel and the reform of the CBN see S Apati, The Nigerian Banking Sector Reforms: Power and Politics (Palmgrave MacMillan, 2012), 40–41.

77 For example, in 2009, the Asset Management Corporation of Nigeria (AMCON) utilized an estimated NGN770 billion to salvage bad debts incurred by 5 banks in Nigeria. See O Olanipekun (n 10).

78 See n 8.

79 Apart from companies’ registry and such autonomous agencies, other agencies assigned the responsibility of managing collateral registries in the surveyed jurisdictions include agencies generally charged with managing collaterals whether personal or real such as registrar of mortgages, Ministries of Justice, or as with the United States of America, the office of the Secretary of State.

80 For a comprehensive discussion of the reform of personal property in Malawi, see M Dubovec and C Kambili, ‘Secured Transactions Law Reform in Malawi: the 2013 Personal Property Security Act’ in L Gullifer and O Arkseli (ed.) Secured Transactions Law Reform: Principles Policy and Practice (Hart Publishing, 2016), 183.

81 World Bank Group, Africa Private Sector Group, ‘Malawi Investment Climate Assessment’ (2006).

82 See (n 77), 185.

83 See MPPSA, Part IX.

84 See Dubovec and Kambili (n 80), 185.

85 UNCITRAL Legislative Guide (n 37).

86 Ibid., 165.

87 Ibid., 163.

Additional information

Notes on contributors

Gregory Esangbedo

Gregory Esangbedo MPhil in Law, University of Oxford, London, United Kingdom of Great Britain and Northern Ireland.