Collateral is the ‘missing link’ between SMEs and banks

A study on financial literacy in Nigeria has identified collateral as the missing link between small-scale business and the financial institutions.

The outcome of a survey conducted by the Central Bank of Nigeria (CBN) in partnership with the International Finance Corporation (IFC), a member of the World Bank Group, showed that lack of collateral had been hampering the growth of small businesses.

The survey probed basic financial knowledge and practice, use of credit and provision of credit, knowledge and use of credit information and credit bureaus in Nigeria, knowledge and use of collateral perception of the concept of collateral registry.

A total of 1,500 respondents from Lagos, Rivers Anambra, Abuja, Kano and Bauchi states were interrogated.

“The report identified collateral as the missing link between the small-scale business sector and the financial institutions that could provide the necessary capital for them to grow,” read a statement issued after the survey was conducted.

“Many of these businesses have the potential to become bigger and more prosperous, but their growth is restricted for a variety of reasons. Access to finance has been singled out as a crucial prerequisite to

“Smaller firms often lack the assets/collateral required to access formal loans, such as land or fixed property, making them risky clients in the eyes of the financial sector.

“This means formal lending is virtually inaccessible for these small businesses and entrepreneurs, who instead rely on informal, unregulated, and unpredictable credit in order to expand their operations.”

Nigeria is an entrepreneurial economy with an estimated 37 million micro-small-and medium-sized companies.

Their contribution to economic growth and job creation is significant. There are also a large number of self-employed entrepreneurs who support themselves and their families by supplying goods and services to the economy.