| The Nigeria credit system is growing in baby steps, especially when it concerns credit infrastructure, sets of laws and institutions that facilitate access to finance. According to the World Bank Group, Nigeria as of 2018, ranks 12th globally on “the Getting Credit sub-index” list for the Ease of Doing Business. The index focused on the credit infrastructure and assesses the laws that surround credit information gathering and movable collateral. In 2018 however, Nigeria improved access to credit information by guaranteeing borrowers the legal right to inspect their credit data from the credit bureau and by providing credit scores to banks, financial institutions, and borrowers. The country also strengthened access to credit by adopting a new law on secured transactions and establishing a modern collateral registry. Juxtaposing the estimated size of the Nigerian credit market against the size of the credit markets in other more developed countries, we can make note that the Nigerian credit market is relatively underdeveloped. A 2018 survey by IFC – International Finance Cooperation revealed that lending remains concentrated in sectors with tangible assets. 21.9% of total banking credit was allocated to the Oil & Gas sector, 13.29% to the manufacturing sector, while, on the other hand, sectors such as Agriculture and Education account for only 3.21% and 0.47% respectively. Also, only about 31% of MSMEs in Nigeria has ever obtained a loan from a commercial or Micro Finance Bank. Experts in Nigeria believe that the lack of assets or collateral required by banks to guarantee the borrowed funds and limited credit options are two main reasons for this low figure. Whereas, in more developed countries there is an array of formal financial institutions offering credit in the form of private equity, venture capital, credit union loans and peer-to-peer financing, Nigeria’s formal sector is somewhat limited to banks and non-banks who have trouble handling risk management and mitigation. Let’s take a breather, and recall that for the Nigerian economy to grow there is a need for a robust credit system. This will help boost business performance and productivity as businesses would be able to invest in infrastructure, inventory, and innovation and make more sales, which is also critically essential for private consumption growth. It is also imperative to note that the MSMEs account for over 90% of private sector activity, 80% of job creation and 50% of GDP. Thus, a boost in their performance, supported by credit financing, will have a positive impact on the economy as a whole. It is understandable that in a bid to reduce non-performing loans (NPLs), lending houses appear to have become rigid and risk-averse, especially when it comes to individual lending but it should be considered that Nigeria’s credit facilities economy is still very much in its infancy stage. As it still lags when it comes to actual credit availability and provision. High-interest rates, lack of collateral and low-risk appetite from financial institutions will continue to hinder the growth of credit provision in the country. Meaning that private sector activity will remain subdued and private consumption growth will remain at sub-optimal levels. Professionals believe that innovative ways to expand Nigeria’s credit market, improve our credit to GDP ratio to rank among the top three of emerging markets, and enable lenders to make credit accessible, convenient and affordable includes: |
- Leverage technology: Technology will facilitate access to the credit market irrespective of where the prospective borrower lives or operates from. A credit bureau database comprising basic credit information/ individual needs of borrowers will provide lenders with the necessary information required on prospective borrowers.
- Investment in a robust ICT platform for credit facilitation: A robust solution will enable lenders to develop innovative products, manage credit facilitation, repayment and customer engagement, through various delivery channel (e.g. mobile app, etc.) while plugging-in to the robust ICT platform.
- Make the cost of credit internationally competitive: Individual credit lenders can embark on the aggressive mobilization of relatively cheap funds to lower funding cost, and also pursue effective cost management strategies.
- Develop requisite credit skills: Individual credit lenders should consider embarking on deliberate skills development and enhancement for its staff, especially preparing them for international competition.
Finally, a consolidated approach by players in the Nigeria credit market to fully implement a strong legal framework, sustainable macro-economic environment, macro-level credit information collation, and management system. While also educating borrowers on the importance of repayment and lowering the cost of doing business will enable the credit market play a vital role in the growth of other sectors of the economy through financial support for economic activities, and drive the entire financial services system. This will also motivate job creation and expand consumer expenditure.
