Nigeria needs to get consumer credit scheme right

IN fulfilment of one of his campaign promises, President Bola Tinubu recently set up a consumer credit guarantee scheme to address issues surrounding access to credit by the public. The President, an advocate of consumer credit, has previously highlighted its potential to drive economic recovery, boost industrial production, and reduce corruption.

According to its mission statement, the scheme, to be administered by the Nigerian Consumer Credit Corporation, a wholly owned Federal Government entity, aims to accelerate consumer credit access to 50 per cent of working Nigerians by 2030.

Crucially, the scheme will facilitate the establishment of credit scores and a credit history for borrowers. CrediCorp says the credit score becomes personal equity which working citizens can build towards facilitating access to consumer credit. Indeed, credit penetration in Nigeria has risen to 14 per cent over the last 15 years while 33 million Nigerians already have a credit score per CRC Credit Bureau.

The consumer credit scheme is worthwhile. Consumer credit is a staple element in developed economies and helps citizens enjoy a quality of life well above current earnings by allowing access to goods and services without having to pay upfront. It facilitates social mobility and attainment of lifestyle aspirations by granting access to critical purchases.

This plays a critical role in the economic cycle with manufacturers and service providers enjoying consistent and increased demand. This stimulates overall economic growth and jobs. Financial intermediaries and insurers also enjoy good business as facilitators of the schemes.

Essentially, the new scheme will work with lenders by offering credit guarantees and wholesale lending to financial institutions dedicated to broadening consumer credit access. About 150 financial institutions, mostly microfinance banks have indicated willingness to be onboarded.

CrediCorp says it is partnering with the National Identity Management Commission to effectively link the National Identity Numbers of Nigerians to a credit-scoring system.

Over 40,000 civil servants have applied in the initial phase and are expected to receive the first tranche of payment in weeks. Beneficiaries from the public are expected to emerge in the next rollout phase with about 500,000 expected to have been covered by May 2025.

However, for the scheme to become sustainable, all participants should get it right. The latest data from the Central Bank of Nigeria indicates that the value of personal credit rose by 14 per cent or N380 billion to N3.03 trillion in January alone compared with the outstanding of N2.64 trillion as of December 2023.

Data from the Federal Competition and Consumer Protection Commission show that the number of digital lenders or loan apps surged by 64 per cent to 284 as of May 2024 up from 173 in April 2023 reflecting the growing credit appetite of Nigerians facing weaker purchasing power and higher prices.

Nigerians are notorious for interpreting government-back loan schemes as akin to getting a share of the national cake. Loan apps are struggling with a high rate of defaults because of borrowers’ unwillingness or inability to repay after the immediate desperate need is met. According to Piggyvest, four in 10 Nigerians are in debt, and 26 per cent owe loan apps.

The IMF reported last year that only 24 per cent of the CBN’s Anchor Borrowers Scheme repaid their loans, though the CBN put the figure at 47 per cent.

For the consumer credit scheme to succeed, there must be dependable mechanisms to determine credit scores and evaluate potential beneficiaries to eliminate those intent on gaming the system.

The lending rate should also be within reason. The monetary policy rate is already 26.25 per cent. CreditCorp should disclose the expected repayment rates for loans taken and the margin allowed for lenders.

Banks must not be allowed to take undue advantage of borrowers by imposing exploitative transactions and administrative charges that would limit the government’s intentions.