Credit is essential for any thriving free market economy. It encourages investment, drives innovation, and supports entrepreneurship. In Nigeria, much of the discussion around credit focuses on businesses’ access to capital. However, there is a case to be made for the importance of consumer credit. In 2021, personal expenditure accounted for two-thirds of the U.S GDP, demonstrating that for any capitalist economy to flourish, there is a need for consumers to spend.

In order for consumers to spend, they must have purchasing power, and when it comes to this Nigerians are hugely constrained. Here’s some data to help us put into perspective just how bad this problem is: less than 2 per cent of the Nigerian population can afford to spend more than $10 a day, this is a stark contrast to another country with a comparable population, Brazil, where 59 per cent of people can afford that amount. Where people do not have cash, the alternative is credit, so one would assume many consumers are accessing credit formally to ease purchasing, but the World Bank Global Findex database shows that only 4 per cent of Nigerians above 15 years old have borrowed from a financial institution, compared to 9 per cent in South Africa, 10 per cent in Ghana, and 17 per cent in Kenya.

This all means without cash or informal loans the opportunity to finance crucial purchases is near impossible to the majority of Nigerians.

Looking at all this against the backdrop of Nigeria’s booming fintech space, there has been colossal growth in Nigeria’s digital economy. Debit cards, point-of-sale devices, ATMs and mobile financial apps are all commonplace in the average person’s day to day activities, but all of these do not address day to day budget constraints, as well as the need to increase economic activity and personal spending. What is likely to address the issue though, is consumer lending. Consumer lending and credit is the vehicle to facilitate consumer spending.

Consumer credit is a powerful tool for both the individual and the economy. It promotes economic mobility, which counters the impact of inequality. And fairness aside, economic mobility helps to grow the middle class — the portion of the population which ideally should drive consumption and promote economic development.

Data from the Global Payment Report shows that the top two trends in global e-commerce payment methods are digital/mobile wallets and Buy Now Pay Later (BNPL) facilities. To the point of facilitating spending, it is easy to see why the BNPL model has done so well, and gained such momentum. Just on a psychological level, the option to spread a payment and not have to worry about dropping a lump sum for an item makes the decision to purchase much easier.

But also from an economic standpoint, this option opens up the retail market to a wider range of potential customers who through this option can afford to purchase items, where in the absence of BNPL, could not. European fintech (BNPL) company Klarna has touted their ability to boost average order value by 41per cent, while American BNPL provider Affirm claims it increases average order value by 85 per cent. While this all screams consumerism, all that consumption is good for the economy, and all that spending is good for businesses.

The BNPL model of payment for online purchases is taking off in more developed parts of the world, offering numerous benefits, but this payment method relies heavily on existing credit information systems, because a key component of this model is a reasonable assurance that customers can actually pay back their frontloaded costs. Given this need, BNPL providers in Nigeria face a unique challenge given our less developed credit information systems.

While I for one worry about the risk of this model in a country with data systems like ours, and many are a flight risk because identity information is not all the way synchronised across agencies, Nigerian companies like Carbon Zero that have managed to adapt this solution to this unique market are highly commendable. Some of their credit qualification metrics include having a minimum salary requirement of ₦200,000, as well as a longer approval process than some of their foreign counterparts.

I think this is a good case of adapting foreign trends to local needs. As most startups bringing a foreign product to the Nigerian market there is a need to solve with the “Nigerian factor” in mind, without which a good idea is likely to turn bad. Another opportunity that arises from the gap in this space is the ability for startups to accidentally or by design build core infrastructure that other businesses need to take off. One example is Nigerian company Evolve Credit who through their systems for assessing creditworthiness of the buyers inadvertently created infrastructure that proved valuable to other existing lenders who wanted to make their processes more efficient.

Consumer credit has the potential to unlock significant economic growth in Nigeria by empowering individuals with the purchasing power needed to drive demand. Given the current economic climate, the shrinking middle class, and the urgent need to boost consumer expenditure, many are beginning to recognize that credit might not be such a bad thing after all. While BNPL has been my key focus, other credit facilities such as Digital Wallet Credit Lines, Pay-As-You-Go Financing, and increased accessibility to revolving credit cards also hold promise. If these credit options can be tailored to local realities, financial institutions get the opportunity to not only help more consumers meet immediate needs but also lay the foundation for a more inclusive and sustainable financial ecosystem.

The writer, Tolu Raji is the Founder of Fancy Tokens, a B2C marketplace that connects buyers to high quality African home and lifestyle pieces. She has grown what began as a personal need into a globally recognised brand with customers spanning the continent.

Tolu combines her passion for business with a commitment to excellence, using Fancy Tokens as a platform to celebrate heritage craftsmanship. A standout feature of Fancy Tokens is its dedication to promoting quality work by local artisans, while also making a positive social impact by supporting the livelihoods and businesses of artisans from underserved communities.

In her free time, Tolu enjoys reading, writing, and contributing to advancements in the digital technology and commerce space.