President Bola Ahmed Tinubu’s commitment to fulfilling his election promise to institutionalise consumer credit in Nigeria is evident from the President’s approval and directives for the incorporation of the Nigerian Consumer Credit Corporation (the Corporation).
This evidently demonstrates the President’s commendable fidelity towards enhancing the economic well-being and quality of life for all Nigerians. Closely ingrained into the President’s vision is a mandate to strategically connect, regulate and enhance consumer credit in a manner that adequately aids the broader national objectives to expand the manufacturing and industrial sectors, create employment opportunities, combat corruption, and catalyse economic growth.
To ensure the effective execution of this mandate, a Board of Directors and Management Team, comprising functional experts from both the public and private sectors, have been constituted to lead the Nigerian Consumer Credit Corporation to facilitate access to credit for Nigerian consumers.
This significant economic direction of Mr. President requires the collective backing of policymakers, the financial and banking industries, our international partners, the manufacturing and service sectors, and indeed, all citizens, to ensure its success.
But what really is Consumer Credit? It is far more than just a cash disbursement or cash-hawking instrument. When strategically deployed and incentivised, it is a powerful driver of economic growth, demand stimulation, and job creation. Globally, the expansion of consumer credit has been directly linked to increased Gross Domestic Product (GDP), higher consumer spending, and the creation of millions of jobs. For Nigeria, establishing a strong consumer credit ecosystem is not merely a choice—it is a strategic imperative for achieving sustainable economic development, fight corruption, job creation, and improving the livelihoods of our citizens.
Consumer credit is a financial arrangement that empowers individuals to borrow funds for personal, family, or household purposes enabling immediate purchases of goods and services while offering flexible repayment options. In that wise, it may be necessary to situate the types of Consumer Credit.
One, Revolving Credit: This category includes credit cards and Home Equity Lines of Credit (HELOCs), allowing consumers to borrow up to a predetermined limit and repay at their discretion, so long as minimum monthly payments are met. The credit availability replenishes as repayments are made. Globally, revolving credit accounts for approximately 10 per cent- 15 per cent of total consumer credit. However, this type of credit is minimal or virtually absent in the Nigerian credit market.
Two, Installment Credit: Characterised by fixed-sum loans repaid over predetermined periods through regular instalments. Installment credit includes auto loans, mortgages, and loans for household items like appliances and electronics. This category constitutes a significant 60 per cent – 70 per cent of total consumer credit globally, largely driven by home mortgages and car loans. In Nigeria, the prevalence of this type of loan is notably low; for instance, the total home mortgage portfolio in Nigeria is less than 0.5 per cent of GDP, compared to 20 per cent in South Africa and about 23 per cent in Namibia and Cape Verde.
Three, Open Credit: A less common form of credit, open credit includes arrangements for utilities or mobile services, where consumers pay for usage at the end of a billing cycle. This type of credit accounts for an estimated 1 per cent – 2 per cent of global consumer credit. In Nigeria, open credit is similarly low or non-existent.
Four, Personal Loans and Cash Advances: These loans, designed for short-term financial needs, are notable for their high-interest rates and fees. They represent 3 per cent – 5 per centof total consumer credit in many countries. In Nigeria, however, personal loans and cash advances are the most prevalent form of consumer credit, making up about 90 per cent of the estimated 8 trillion-naira consumer loan portfolio of financial institutions.
Five, Student Loans: Aimed at covering educational expenses such as tuition, books, and living costs, student loans often have unique repayment terms. Globally, they constitute about 5 per cent – 10 per cent of total consumer credit. In Nigeria, student loans were largely absent until the recent introduction of a student loan program by President Bola Ahmed Tinubu (GCFR) through the Nigerian Education Loan Fund (NELFUND).
With hindsight, a look at the past and present levels of impact of Consumer Credit on Nigeria’s economic growth can help provide some context to the crucial necessity to take very seriously the current Presidential mandate to strategically connect, regulate and enhance consumer credit in a manner that adequately aids the broader national economic objectives of expanding the manufacturing and industrial sectors, creating employment opportunities, combating corruption, and catalyzing economic growth.
In the 1950s and 1960s, as Nigeria embarked on diversifying its economy post-independence, the government implemented policies aimed at stimulating industrial growth. A critical, but strangely often overlooked factor during this period was the role consumer credit played in driving economic development. In the 60s and 70s, consumer credit primarily facilitated by private finance companies through hire-purchase agreements, was extensively used to finance the purchase of durable goods and capital equipment. This access to credit significantly boosted consumer spending, increased demand for locally produced goods, and supported the expansion of the manufacturing sector. By 1964, approximately 38.4 per cent of total outstanding credit originated from these finance companies, with commercial banks providing essential operating funds.
It is very much noteworthy that Nigerian governments at various levels also played a pivotal role by guaranteeing loans to workers for purchases such as motor vehicles and consumer durable products, thereby expanding credit access for individuals. The growth of consumer credit in the 60s and 70s not only improved the standard of living for many Nigerians but also stimulated growth in the local manufacturing of goods and services (e.g. the motor vehicle and consumer durables industries).
However, the introduction of the Structural Adjustment Programme (SAP) in the 1980s, which led to unrestrained importation and a high-interest rate regime, resulted in reduced credit availability and affordability for households. This shift severely impacted local industries that were mostly reliant on consumer credit, diminishing their ability to compete against cheaper imports and leading to the gradual decline of these industries, and ultimately resulting in the loss of millions of jobs. A point that cannot be missed is that the years when consumer credit, represented by access to finance and support through reliable Government Guarantees.
Of course, the evidence of the scary levels of job losses and shut down of manufacturing businesses across the length and breadth of Nigeria over the years are there for all to see. The good news however is that the current Presidential mandate to strategically connect, regulate and enhance consumer credit in a manner that adequately aids the broader national economic objectives of expanding the manufacturing and industrial sectors, creating employment opportunities, combating corruption, and catalysing economic growth, is a necessary step towards reversing the decline while ensuring economic revitalisation, and a rebirth of competitive ‘Made-in-Nigeria’ goods and services.
In all these, there is a need to establish a strong nexus between Consumer Credit and the current Presidential “Buy Made-in-Nigeria” Campaigns and Executive Orders. As an industrialist with nearly 40 years of experience and a key participant in Nigeria’s industrial and manufacturing growth during the 1970s and 1980s, I am deeply convinced that consumer credit, when strategically leveraged, can serve as a powerful catalyst for economic and job growth, particularly by promoting the acquisition of made-in-Nigeria.
At present, consumer credit penetration in Nigeria remains critically low, comprising less than 10% of total private sector credit by Banks and less than 3 per cent of GDP, as highlighted in the recent economic report by the Central Bank of Nigeria (CBN), comparing quite poorly to other peer African economies such as South Africa (40per cent), Kenya (10per cent), Egypt (12per cent) and Morocco (30per cent).
This limited penetration is predominantly focused on cash loans, with minimal strategic use of consumer credit to drive the productive sectors of the economy. The current state of consumer credit poses significant challenges to economic growth, financial inclusion, and the overall development of the financial sector. The mandate of Nigerian Consumer Credit Corporation is to reverse this trend by removing structural, market and policy barriers that are hindering the growth of consumer credit in Nigeria via three key pillars
To be continued tomorrow.
Abdul is the Chairman of the Nigerian Consumer Credit Corporation.
