The Nature of the Secured Transactions System in Nigeria

Security is important in financial transactions involving secured transactions. Lenders hold property as security because it is viewed as a reliable method of advancing credit, upon careful evaluation of the borrower as to whether the expense justifies the return.21 Offering security can aid the successful completion of a transaction whereby loan is advanced particularly in large financial arrangements such as in construction contracts and mineral exploitation. Credit lending is the soul of any developing economy which practically sustains the lives of consumers and businesses.22 Credit availability is necessary to finance commercial enterprises and consumers.23 Limited access to finance is a major business constraint and it is among the top three limitations in the growth of a private sector.24 In most economies, around 22% of their capital stock of business is in immovable assets, while the remaining 78% are typically personal property.25

Emerging markets e.g. Nigeria continue to face difficulties in gaining access to affordable credit due to stringent financial regulations placed by lenders because they prefer land as security.26 Applications for credit are often rejected due to ‘inadequate’ or ‘unsuitable’ collateral. In many instances, businesses are discouraged from applying for loans because of the strict requirements often requested by the lender.27 As a result, lenders prefer to advance credit only to businesses they have studied and observed and those that

20 _{Gunther Teubner, ‘Legal Irritants: Good Faith in British Law or How Unifying Laws Ends Up in New}

Divergences’ (1998) 61 Mod L Rev 11, 12.

21 _{David Allan, ‘Securities: Some Mysteries, Myths and Monstrosities’ (1989) 15 Monash U.L.R. 341, 342.} 22 _{Report of the Review Committee on Insolvency Law andPractice(Cmnd 8558, 1982) henceforth ‘Cork}

Report’, para 10.

23 _{Commercial enterprises here is used loosely to connote all forms of businesses including partnership,}

unregistered businesses, limited liability companies, sole proprietorship, etc.

24 _{Alejandro Alvarez de la Campa, ‘Increasing Access to Credit through Reforming Secured Transactions in}

the MENA Region’ (2011) The World Bank Policy Research Working Paper WPS5613 <http://elibrary.worldbank.org/doi/abs/10.1596/1813-9450-5613> accessed 14 December 2016.

25 _{International Finance Corporation, Secured Transactions System and Collateral Registries (World Bank,}

January 2010) henceforth ‘IFC Toolkit’.

26 _{Mehnaz Safavian, Heywood Fleising, Jevgenij Steinbuks, Unlocking Dead Capital: How Reforming} Collateral Laws Improves Access to Finance (March 2006) The World Bank Group Private Sector Development Vice Presidency, Note Number 307.

27 _{Heywood Fleisig, Mehnaz Safavian, Nuria De La Pena, ‘Reforming Collateral Laws to Expand Access to}

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have been well documented over the years. In practice, borrowers would need to pledge some form of collateral in order for their loan application to be granted, and most often, it will be rejected due to a lack of a regulatory framework to support personal asset security.28

The cost of securing adequate finance for businesses is indirectly influenced by the laws affecting secured transactions. Commercial laws including secured transactions rules and regulations in Nigeria were derived from English law, including the common law and statutes.29 For instance, Lagos State in Nigeria possesses a Bill of Sale Law (B2 Laws of Lagos State) which controls the autonomous transfer of right, title and interests in personal property.30 This law has glaring similarities with the English Bill of Sale Act 1923 but it is currently not commercially feasible in light of recent economic advancements.31 _Local legislation, court rules and customary law are also integrated into the Nigerian legal system and they work side by side with received English laws in matters relating to business and commerce.32

For all that, the Nigerian Constitution vests authority in Parliament to enact national legislation to regulate business, commerce and trade in Nigeria.33 The provisions stipulated by the Constitution include, inter alia, carriage of goods and persons by air, bankruptcy and insolvency, banking, borrowing money within or outside Nigeria for the Federal Government or provincial State, bills of exchange and promissory note, industrial and commercial monopolies.34 Unfortunately, there seems to be no uniform set of rules to regulate secured transaction law over personal property in Nigeria such as those present in Ontario Personal Property Security Act (‘PPSA’) and the United States Uniform Commercial Code Article 9, henceforth ‘UCC Article 9’. The closest that has yet been achieved is the establishment of the nascent CBNR, which is the focus of this thesis.

28 _{ibid 7 – 8.}

29 _{Taslim O Elias, ‘Colonial Courts and the Doctrine of Judicial Precedent’ (1955) 18 Mod L Rev 356.} 30 _{Iyare Otabor-Olubor, ‘Stuck in a Time Warp: Security Interests in Chattel Mortgages and the Bills of Sale}

Legislation in Nigeria’ (2015) 26 ICCLR 345.

31 _{The exportation of this English law has almost been commented in other reformed jurisdiction such as in}

New Zealand as stated by Duggan and Gedye: ‘The law relating to security over chattels and intangibles in New Zealand is in a mess.... The principal reason for the mess is that New Zealand inherited the English Bills of Sale legislation (itself a mess) and the relevant provisions of the companies legislation (an incomplete security system) and adapted them to local needs, sometimes in a desultory way.’ Anthony Duggan and Michael

Gedye, ‘Personal Property Security Law Reform in Australia and New Zealand: The Impetus for Change’ (2009) 27 Penn St. Int’l L. Rev. 655, 659 – 660. Nevertheless, the present secured transactions law in New Zealand has been enacted as a Personal Property Securities Act 1999 which is in parallel to Article 9 of the United States Uniform Commercial Code.

32 _{Charles Mwalimu, The Nigerian Legal System (Vol. 2 Private Law Peter Lang, New York 2009) p. 399.} 33 _{The Nigerian Constitution 1999 as amended, Article IV Second Schedule.}

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Some African countries, especially the francophone nations, must be commended for taking a bold step by adopting the OHADA Uniform Act Organising Securities, henceforth ‘OHADA Law’ uniform law to regulate their secured transactions.35 _{The objective of} OHADA Law is to facilitate investment and trade, both locally and internationally, in order to integrate and harmonise the business laws applicable to large business market in those African member states.36 Nigeria, being a predominantly common law nation, cannot be a member of OHADA, which currently does not have any common law country as a member, save for Cameroon which operates both common law and civil law, while the other member nations operate civil law.37 Nigeria will be better off reviewing and possibly reforming its own secured transactions laws along recommended international best standards.

Nigeria is not only a nation with a large population,38 _{but also one with abundant} natural resources,39 which displays features of potential economic development. This creates the need for a modern secured lending infrastructure. Sustainable investment and development will be difficult to achieve without, a stable secured transactions law that protects private property or investment, as well as protection of property rights. These parameters are essential for secured transactions to thrive in a developing economy such as Nigeria. Since secured transactions laws in Nigeria are not fully developed, financial institutions that engage in credit lending remain unwilling to accept diverse range of collateral. For this reason, it is important to examine the various lending devices in Nigeria in order to identify the possible problems associated with them.

35 _{OHADA is a French acronym for ‘Organisation pour l'Harmonisation en Afrique du Droit des Affaires’,}

which means ‘Organisation for the Harmonization of Business Law in Africa’, created on October 17, 1993 in Port Louis, Mauritius. It is currently made up of seventeen African states namely: Benin Republic, Burkina Faso, Cameroon, Central African Republic, Chad, Comoros, Republic of the Congo, Côte d'Ivoire, Democratic Republic of Congo, Equatorial Guinea, Gabon, Guinea, Guinea-Bissau, Mali, Niger, Senegal and Togo. However, there are different challenges to harmonising International Business Laws in Africa due to the diverse political differences found in each jurisdiction, see Charles M. Fombad, ‘Some Reflections on the Prospects for the Harmonisation of International Business Law in Africa: OHADA and Beyond’ (2013) 59 (3) Africa Today 51, 54 - 57.

36 _{To maintain these objectives as set out by OHADA, it has a structured institutional system such as those we}

have within a sovereign state: Assembly of Heads of State and Government, the Council of Ministers (political bodies) and the Permanent Secretariat make up the Executive saddled with the responsibility of coordinating with the Council of Ministers and to assist in the preparation and monitoring of the procedure for the adoption of the uniform Acts. For efficiency, two other specialized bodies augment the institutional system - Common Court of Justice and Arbitration of OHADA (CCJA) and Regional Higher School of Magistracy (ERSUMA).

37 _{Akere T Muna, ‘Is OHADA Common Law Friendly?’ (2001) 3 Int’l L Forum du Droit Int’l 172.}

38 _{Deborah Potts, ‘Challenging the Myths of Urban Dynamics in Sub-Saharan Africa: The Evidence from}

Nigeria’ (2012) 40 World Development 1382.

39 _{Musa Jega Ibrahim, ‘Growth Prospects of Oil and Gas Abundant Economies: The Nigerian Experience}

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