‘Research has shown that credit penetration is still very low in Nigeria’

Having access to credit no doubt will have positive impact on the social economic development of any country particularly its GDP. With recession out of the way and ease of doing business in Nigeria getting a global ranking from financial experts, the Managing Director/CEO of CRC Credit Bureau and Chairman of Credit Bureau Association of Nigeria, Tunde Ahmed Popoola, in this interview with The Guardian says this calls for celebration, as this improvement as the 6th nation in the world with ease access to credit is very significant and unparalleled

In recent times, Nigeria seems to be getting pass marks from global financial experts and notably improvement in doing business in 2018. What is your view as an expert?
Oh yes! Nigeria witnessed a tremendous improvement in the Ease of Doing Business 2018 ranking, moving incredibly by 24 places from 169th position to 145th position out of 190 economies. Nigeria also featured as one of the 10 economies that showed the most notable improvement in Doing Business 2018. A major driver of the upward improvement in ranking was the tremendous achievement in the ease of access to credit. Nigeria is now placed 6th in the world on the Getting Credit indicator. This change was the largest area of improvement. In 2017, Nigeria ranked 44th; the improvement to the sixth position is therefore very significant and unparalleled.

These results call for celebration. The Federal Government saw this as a major boost, with the news coming at the time when the country just exited recession. The government went into the well-deserved celebration.

But what does this incredible ranking as the 6th nation in the world with ease of access to credit mean? Does this really mean that consumers and businesses are already enjoying access to credit? If not, how can we leverage on the gains to unleash access to credit and enhance economic growth and widespread prosperity?
Our latest ranking was informed by the fact that most of the processes, laws and infrastructure required to enable access to credit have been put in place in Nigeria. Nigeria now has three licensed private credit bureau, a public credit registry managed by the Central Bank, credit reporting legislation called the Credit Reporting Act 2017, a collateral registry and its enabling law known as the Secured Transactions in Movable Assets Act, 2017, and the establishment of an out-of-court enforcement of security rights. All these are necessary, but not sufficient conditions for access to credit for Micro, Small and Medium Enterprises (MSMEs) and consumers.

Nigeria is still a ‘cash-and-carry’ economy. Most consumers and small business owners and operators largely depend and rely on their personal savings and support from friends and relations to obtain funds to start and grow their businesses. Research has shown that credit penetration is still very low in Nigeria; indeed, among the lowest in sub-Sahara Africa and the world. To illustrate how bad it is, credit penetration in Nigeria, using 2015 data, stood at 14.6 per cent whereas sub-Sahara Africa’s was 45.7 per cent. At the same time, South Africa’s was 151.4 per cent. So, notwithstanding our impressive ranking, access to credit continues to experience significant constraints. We need to remove the constraints and unlock the potentials and the opportunities presented by the new rankings. The good news is that the afore-mentioned initiatives and credit infrastructure are capable of significantly improve access to credit.

But why is access to credit so important, especially for consumers and small businesses?
A credit economy is desirable for a number of cogent reasons. Prosperous nations with prosperous inhabitants are mostly economies with high level of credit penetration. Effective demand is limited where people must rely on their earnings and personal savings to effect consumption; a cash-driven economy limits demand and punctuates ‘good life’.

The starting point will be the need to improve financial inclusion. Nigeria has a huge population of over 190 million people. From the available data, less than 10 million persons have enjoyed at least one form of credit from formal banking institutions. Only about three million Nigerians enjoy credit from the banking system at any point in time from all the 22 commercial banks in Nigeria. In addition, the entire bank loans to consumers at any given time in a month is less than a trillion Naira. Nigeria’s banking system total loans to the private sector in October 2017 was about N20 trillion to less than two million individuals and entities. Of this, a total loans of N645 billion went to 1.6 million consumers; while about 245,000 business entities borrowed N18.7 trillion. To underscore the challenge of loan concentration, less than two thousand entities accessed N15.7 trillion, representing about 81 per cent of the total loans granted by the Nigerian banking industry. So, access to bank loans is opaque and highly concentrated. Clearly, consumers and MSMEs are yet to have a fair share of access.

How do we grow the number of consumers and small businesses who enjoy easy access to credit in the formal financial system?
Typically for consumers, not less than 70 per cent of bankable adult population should enjoy access to credit. This seems impossible to achieve since financial services penetration itself is far from this. EFInA studies revealed that there were 93.5 million adults in Nigeria as at 2014 but only 45.4 million Nigerians enjoyed formal financial services and an additional 12.3 million enjoyed other forms of financial services. This implies a financial penetration of less than 50 per cent.

Low financial penetration leads to low credit penetration and both are indices of weak financial system. A strong financial system typically must promote credit to Micro, Small and Medium Enterprises (MSMEs) and credit to consumers. Access to credit for MSMEs is a form of productive credit, which invariably promotes economic growth. Simultaneously, credit to consumer enhances quality of life of the people. The implication is that when MSMEs have access to credit, they enhance production and stimulate new jobs. Those with jobs should find it relatively easy to access credit. And when consumers also have access to credit, then effective demand can take place, as they do not need to wait to purchase and consume only what they can save for. This invariably improves demand, forcing production to meet demand.

The good news is that available credit infrastructure can still do the magic. The private credit bureaus have been around for some time in Nigeria since 2008 but not all lenders and creditors have taken advantage of the products and services they have put on offer. The credit bureaus are to provide information on the credit-worthiness of borrowers, especially consumers. Credit reporting enhances information sharing and improves informed decision-making. Credit information sharing matters and it is very strategic because it reduces information asymmetries, lowers cost of credit thereby increasing access to credit and improves borrower discipline and prevents over-indebtedness. But as it is today, the credit bureaus have credit data of those that have obtained credit from the formal financial institutions. Due to very low level of financial inclusion and low credit penetration, credit bureau coverage in Nigeria remains very low at less than eight per cent. This implies that only few Nigerians and businesses are captured or covered by the credit bureau.

How can credit bureau impact consumer lending and access to credit, particularly small businesses?
For credit bureaus to significantly impact consumer lending and access to credit for small businesses, there is the need to get more data unto their database. The informal sector is very imperative for this. Besides, huge data in strategic sectors such as telecommunications, electricity distribution companies and other utility entities are very important. This is because, the size of credit activities in these strategic institutions and the informal sources are far more than those taking place in the formal financial institutions. The private credit bureau realised this early enough and have aggressively been combing for data from other sources by extending their data gathering efforts to the telecommunication companies, electricity distribution companies, insurance companies, retailers, cooperative societies, conglomerates, non-bank financial institutions such as microfinance institutions, leasing companies, finance houses and real estate management firms. Efforts in this direction has not yielded commensurate results as it seems that most of these sources do not appreciate the value inherent in submitting data of their customers to private credit bureau. Effectively, the performance of private credit bureau in Nigeria, as in most other African countries, have been largely influenced by the regulators (Central Bank of Nigeria) directives. More can still be done by government to promote the culture of information sharing and using credit bureau information for decision-making.

How do you think Nigeria can grow its source of data considering the fact that Nigeria doesn’t have regular data system?
One veritable potential source of data to the credit bureaux remains the various government support credit programmes to MSMEs and individuals. For example, the Central Bank of Nigeria has released about N44billion to over 200,000 smallholder farmers through its popular Anchor Borrowers Programme in 29 states of Nigeria. In addition, the Nigerian Incentive-based Risk Sharing System for Agricultural Lending (NIRSAL) has also provided small loans to thousands of small-holder farmers. A number of state governments have granted credits of small amounts, under various schemes, to small business owners and small-holder farmers including some federal government agencies such as the National Directorate of Employment (NDE). All the agencies and government departments should on-board their data to the credit bureaus. This will widen the database of the credit bureaus and is capable of mainstreaming the beneficiaries into formal financial institutions where they can then continue to enjoy credit facilities.