Credit bureaus are holding back digital lending in Nigeria

I was at a recent event organized for alternative lenders, mostly digital lenders serving individuals and SMEs. The engagements were eye-opening even though I was already conversant with most of the issues raised.

Nevertheless, one of the nagging problems kept nagging me after I left that day.

Everyone was complaining about how difficult it was to get access to credit bureau data. Yes, they exist in Nigeria, and about 3 of them (FirstCentral, CRC, and CreditRegistry) have been licensed for operations by the Central Bank of Nigeria. They even have an association, Credit Bureau Association of Nigeria (proper parapo).

I wouldn’t jump the gun to blame the credit bureaus, but the complaints that kept coming from different actors (banks, MFBs, individuals, etc.) were so many they cannot be without some attributions. There ain’t no smoke without fire.

Here are some of the critical issues that lenders raised.

Cost
The cost charged per record by credit bureau is so high as to make it useless except for the high ticket transactions. Meanwhile, digital lenders lend from the low thousands, and when you aren’t giving credit to everyone you check, the cost becomes a runaway train.

On the flip side, credit bureaus get this data from banks and lenders for free then turn around and sell at an exhorbitant price per check. This doesn’t make sense to me or anyone else for that matter.

If digital retail lending will ever explode in Nigeria, the cost of checking credit bureaus has to be so low that it is marginal. Probably in the region of N20 to N50 per call. Do that for 10 million calls a month, and you have a N6B business a year.

APIs
Without APIs, there is no credit bureau intermediation in digital lending. APIs must be simple to integrate with, extremely stable, and always available. In a modern digital finance world, APIs should take a few seconds and not days to apply for. There should be a sandbox to test without having to contact anyone.

The APIs currently provided by credit bureaus are so poorly implemented – they are buggy, slow, and takes forever to integrate. You can imagine these credit bureau struggling with modern technology. It is interesting to note that none of the credit bureaus has any reference to APIs on its website; so if you want to see developer documentation, you are on your own!

Information
Information should be simple. In the US and other countries, a combination of names and other demographic info are used. In Nigeria, there should be a standard use for BVN. It is unambiguous; it’s simple, it’s fast

Reduced cost for contributors
Credit bureau should give credit of say five free checks for every record of the contribution made by lenders. It offers incentives for lenders to contribute information. The more they update, the cheaper their operations are. It’s a win-win for everyone.

Partnership with fintechs
It’s possible that these credit bureaus have dinosaur backends and find it difficult to serve the fast-paced digital lending world. They could partner with fintechs (hungry for revenue) to build smart API front ends and developer portals which alternative and digital lenders can connect with. Revenue share is a way to make everyone happy. Any takers?

What happens when these are done
Lenders get to trust the system, and it becomes self-reinforcing. The better the system is, the higher the chances of blocking bad actors. When bad actors are getting barred, anyone (like my cousins) with a propensity to go rogue become serious because they can see consequences. Then default rates go down which make interest rates to go down as well. More credit flows. Maybe Nigeria can be great again.

Fun facts
Of the three credit bureaus in Nigeria, two are ladies. Amazing Amazons

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