Credit: Unleashing Nigeria’s Potential

Nigeria, one of Africa’s economic powerhouses, faces a paradox. Despite boasting of one of the continent’s largest GDPs, its development remains uneven, leaving millions on the fringes of poverty. One crucial bottleneck is limited access to credit. Nigeria has an entrepreneurial economy, with approximately 37 million micro, small, and medium-sized businesses contributing significantly to economic growth and job creation. Unlike their counterparts in more developed economies, Nigerian entrepreneurs, farmers, and innovators struggle to secure the financial help needed to transform their ideas into engines of growth. This credit crunch stifles individual dreams and undermines the nation’s broader development aspirations.

The reasons for this restricted access are manifold. Traditional banks, wary of perceived risks and burdened by cumbersome administrative processes, often view small and medium-sized enterprises (SMEs) with suspicion. Lack of credit history and adequate collateral further exacerbate the problem, pushing many towards informal lenders with exorbitant interest rates, trapping them in a vicious cycle of debt.

Limited accessibility of credit significantly hinders the advancement of industries in Nigeria. In contrast to developed nations where individuals possess comprehensive credit profiles facilitating the assessment of their creditworthiness for loans or other assets, Nigeria needs more support due to data unavailability. Typically, accruing debt is advocated to establish creditworthiness for substantial loans concerning housing, education, or business endeavours. Enhanced data availability enables banks to evaluate risk levels, determine interest rates, and offer mutually beneficial options, ensuring informed loan decisions. Despite the existence of the Central Bank of Nigeria’s Credit Risk Management System (CRM) aimed at centralising borrower credit information, its accessibility requires a minimum outstanding balance of ₦1,000,000, effectively excluding the average Nigerian whose debt profile seldom begins at such high thresholds, thereby favouring only the affluent individuals.

Yet, the potential rewards of unlocking credit are vast. A robust credit system is more critical to every nation’s economic progress than a cash-driven system, as it acts as a leveller. Consider the burgeoning tech scene in Lagos, teeming with young talent brimming with innovative ideas. Imagine farmers in rural areas with robust loans to invest in efficient irrigation systems, boosting yields and food security. Picture artisans empowered to expand their workshops, creating jobs and injecting vibrancy into local economies. A system that ensures that these dreams have a chance at fruition will significantly contribute to the development of Nigeria. In addition, considering the humanitarian state of Nigeria, victims of displacement and violent conflicts who have lost everything and need monetary assistance to attain financial independence may encounter even worse obstacles than SMEs and ordinary citizens. A working credit system can ensure that these individuals can leverage their skills to pull themselves and their communities out of poverty.

Financial inclusion initiatives, like expanding mobile banking and leveraging alternative data to assess creditworthiness, can bring more Nigerians into the formal financial system. Per a 2020 report by Enhancing Financial Innovation and Access (EFInA) on access to financial services, just 64% of the Nigerian population is financially included. Credit guarantee schemes, backed by the government or development institutions, can mitigate lenders’ risk perceptions, encouraging them to extend credit to previously underserved segments. Notably, the CBN’s Microfinance Policy, Regulatory, and Supervisory Framework for Nigeria improved people’s access to credit. However, there is more to be done. According to the President of the Governing Council of the National Institute of Credit Administration, Mr Andy Ojei, “Credit is a driving force for economic growth, surpassing even the influence of physical currency”. He urged the government to develop a consumer credit system to boost investment in local manufacturing, agribusiness, real estate, and general retailing. Tailored financial products designed for specific sectors, like agriculture or renewable energy, can cater to unique needs and reduce defaults.

But financial solutions alone are not enough. Fostering a culture of creditworthiness through financial literacy programmes is crucial. Equipping individuals and businesses with the knowledge and tools to manage credit responsibly will build trust with lenders and pave the way for sustainable financial engagement. Additionally, addressing infrastructure gaps and bureaucratic inefficiencies hindering business operations will also create an environment conducive to credit-fuelled growth.

Credit is a familiar notion to numerous individuals in Nigeria. Many Nigerians have engaged in various forms of credit, whether securing substantial loans from banks or purchasing items on credit from local vendors. This widespread practice underscores the pervasive nature of credit utilisation among Nigerians. The benefits of unlocking credit extend far beyond individual empowerment. A vibrant SME sector can diversify the economy, reduce dependence on volatile oil prices, and create much-needed jobs. Increased agricultural productivity can bolster food security and exports. A thriving tech sector can position Nigeria as a leader in innovation, attracting foreign investment and talent.

The journey towards a credit-inclusive Nigeria will have its challenges. However, the potential rewards are too significant to ignore. By prioritising financial inclusion, fostering responsible credit use, and addressing underlying constraints, Nigeria can unlock a powerful development engine, empowering its people and propelling the nation towards a brighter future. The time to act is now. The future prosperity of Nigeria hinges on unleashing the power of credit, one loan, one entrepreneur, one farmer, and one innovator at a time.