Africa cannot be prosperous without access to credit

Let me start by asserting that no nation can be more prosperous than its average citizen. The experience of the common man in any country is the most accurate representation of the state of that country, and any contrary position is misinformed.

When we compare the economic landscape of prosperous nations against that of poor nations, the prosperity of the majority of the citizens takes center stage. Despite the vast resources and potential in many African countries, there is a stark contrast between a handful of wealthy individuals and the majority of the population struggling in penury. For instance, countries like Nigeria and South Africa have notable billionaires, yet the average citizen struggles to make ends meet.

That’s not to say the ‘1%’ don’t exist in the better developed and more prosperous countries. However, what you see in those countries is that despite a concentration of wealth at the top, most people are doing just fine and living decent lives. 

There is more data available to support the provision and access of a robust set of financial services to a significant proportion of the populace in developed countries. Although African countries struggle with a largely underbanked and financially excluded populace, there is a strong argument for the application of open APIs using mobile phone data to support financial inclusion and even create a credit scoring mechanism better suited to developing countries

So how do we attain prosperity in Africa?

If we’re talking about prosperity, this means we’re thinking about African countries stepping up to provide enabling environments for people to develop ideas to fruition, build successful businesses and create generational wealth.

Building this enabling environment is a key component of lasting prosperity. It’ll allow for individuals to pursue quality education, establish businesses, and improve their lives. However, obstacles such as the inability to afford quality education and access resources to support entrepreneurship hinder progress.

Think of the average person who wants to go to school, become a professional or set up a business and build a life for themselves. Such hope is snuffed out by the bleak reality that quality (higher) education isn’t free or cheap. Even if the fees are subsidized, what about the money needed to pay teachers and buy equipment to teach specialized courses? What you get from this is usually underpaid, overworked, apathetic teachers and under-equipped schools. 

This is a recipe for generational disaster, but that’s a conversation for another day.

The solution is clear. 

To address the myriad of issues in our economic landscape and bridge this prosperity gap, there must be a shift towards empowering the broader population through access to credit. Let’s provide the means for individuals to invest in their education, start businesses, and ultimately contribute to the economic well-being of their nations.

Credit has a primary role in stimulating economies

If you take a closer look at countries that are doing well across the globe, there’s always some form of credit in the background driving value creation and prosperity. This makes it easy for us to build a case for credit in Africa. Although, I will always advocate for accessible and affordable credit, otherwise, it’s just a waste of everyone’s time. This is what also underscores the work we do at my loan management SaaS fintech, Lendsqr.

Let’s say we were to create a structure for people to access credit in Africa. It would require short-term, medium-term and long-term facilities which should look somewhat like this: 

Short-term credit facilities could be used to empower small traders and entrepreneurs. They could stock their shops or address immediate financial needs that will allow them to expand their businesses, employ more people, and contribute their own quota to overall economic growth. Even for those who perhaps have a small contract to execute and are strapped for cash; they should easily be able to get a loan from the bank, do what they need to do and pay back within 90 days. Same applies to the use of credit as a safety net during emergencies, ensuring that individuals can overcome health challenges and return to productivity.

Need I point out that taxes only get paid when people make money? And only people who are willing, able and equipped to be productive make money.

In the medium-term, credit could support buying equipment and establishing small factories. An injection like this can stimulate domestic production and promote import substitution. People may import the machines but at least they’ll produce domestically, employ people and everyone gets paid and in turn pays their taxes. It’s a win all round.  

Recently, I watched a video of pressure pots being produced in a local factory in Asia and I think it serves as a compelling example of how domestic production can satisfy local demand and even prepare goods for export. This way of doing things is good for the economy and we’ve seen it work in China as well; millions of people producing varied quantities of things to cater to the domestic market and also reach into foreign markets.

When it comes to supporting heavy industries and large investments, long-term credit facilities should come into play. Dangote’s ventures in Nigeria, such as cement factories and the recently commissioned oil refinery which cost about $20 billion, demonstrate how large-scale projects, though requiring substantial investment, contribute significantly to a nation’s economic development over time and generate value through which the loans can be repaid.

On the less tangible side of things, education is also a long-term investment and a critical aspect of building generational wealth. It enables individuals to build careers, enter the middle class, generate income, and even contribute to government policies. The long-term impact of an educated population extends beyond individual success to national progress.

What’s Africa waiting for?

Credit is a powerful tool that leaders can utilize to transform their countries. It sometimes can even supersede the impact of political leadership – no matter how good a leader is, without credit, the desired progress is impossible to achieve but even with a bad leader, the availability of credit can still make great things happen. 

Perhaps for African leaders who are genuinely trying to transform their country’s economy, the oppressive thought that the government would have to provide the money for credit makes them get stuck with inaction. However, this is far from what is actually required of them. All they need to do is enact laws and policies that remove friction and aid the emergence of credit, and watch things take shape.

The ideal direction would be policies that allow lenders to access capital, reinforce fraud prevention structures and provide a legal process that protects lenders and allows them get their money back from bad borrowers without hassle.

In addition to these, lenders operating in Africa also need a framework for easier reporting of credit and access to cheap but quality data for credit scoring to significantly lower underwriting costs. 

Borrower education and protection are also equally important for this to work as intended. Consequently, the law must provide a strong framework to guard against predatory lending, and also create a process that addresses financial education for people to understand how to handle money, especially when borrowed.

A good example of leadership’s advocacy for credit  is the structure for student loans in Nigeria, created by the current President of Nigeria, Bola Ahmed Tinubu’s administration. The student loan scheme officially launched in Nigeria this month.

On the businesses’ side of things in Africa, we also have companies like Fiducia and Bridgement, making credit available to companies through invoice financing.This is proof that growth we need and desire in Africa is possible.

Let’s stop looking for external aid, grants, or handouts, African nations should focus on securing proper loans and promoting accountability. While credit comes with challenges, it is a potent force for building a better life.

This is a  call to action for leaders at every level, from local to national, across the 54 African countries. By addressing the credit problem and empowering individuals to build businesses, pursue education, and create generational wealth, Africa can break free from the cycle of poverty and usher in an era of sustained prosperity. 

When our people are engaged in building something meaningful, they are more likely to contribute positively to society and turn away from crime when they have a sense of ownership and responsibility.

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Author: Adedeji Olowe

Adedeji / a bunch of bananas ate a monkey /

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