Without access to credit for everyone, Nigeria can’t hit the growth it wants

Credit changes lives. Access to credit boosts education, entrepreneurship, and economic growth. To unlock Nigeria’s potential, the government must protect lenders and borrowers alike.

Let’s start with a story about Bimpe and Uche. Bimpe, a graduate of Sociology from the University of Lagos, is working an underpaying job with no growth prospects. With a salary of N100,000 and more mouths to feed than she could afford, Bimpe was miserable. She couldn’t continue living that way and she decided to start a business. The thing is, Bimpe is a very talented seamstress with a flair for sassy African fashion you see on Instagram, and you go like “whoa!” She could easily earn a lot focusing on couture full time, but she needs about N800,000 to start. She barely had N5,000 at the end of the month after all necessary expenses. Where would she get N800,000 from?!

She tried to save aggressively but life kept getting in the way and it was nearly impossible. She had nowhere to turn to get a loan that size either. Her numerous but failed efforts to gather the funds she needed made her burnout and less focused at work. She lost her job and had to resort to petty trading, barely making ends meet. 

Uche’s story is a little different. Uche didn’t have the opportunity of attending university like Bimpe. However, he did have the opportunity of an apprenticeship with his uncle who owns a logistics business and all Uche wanted was to start his own logistics company after his ‘freedom’. After a couple of years Uche was finally free and then his eyes cleared when he realized he was so focused on learning how to grow his own business that he forgot the ‘seed’ he needs to grow his business isn’t the kind you find easily.

Well, Uche’s seed came in the form of a loan from his cooperative and he bought his first two dispatch bikes for his logistics business. Within 10 years, Uche’s business grew exponentially and he’s now a big man with many delivery bikes, buses and even trucks for nationwide delivery. 

Credit saves.

A loan saved Uche. And most likely many others who could only afford to build good lives through the thousands of jobs Uche created through his business. Now imagine if a million Uches got loans like that and built a million successful businesses. Imagine if some other Uches didn’t even have to wait and could get loans to go to school and get good jobs. Enough with the daydreaming, back to reality: Bimpe. Bimpe whose promising life was completely derailed because she couldn’t access a loan or any line of credit. 

The fact remains credit completely transforms anything it touches and it’s essential to grow any economy. Without credit, growth is limited; stifled even. Every N1 injected into the economy has the potential to create 10x value. This phenomenon is known as the ‘multiplier effect’. 

What is the multiplier effect?

I won’t bore you with the technical jargons; let’s leave that for the economists. For the purpose of my crusade for credit, the gist of it is that for every injection (investments, capital expenditure, etc) into the economy, there’s an amplified ripple effect on the value and income generated within that economy. 

Think about this: you’re on your way back home after a long day at work and hunger pangs are flogging you worse than your primary school teacher! A woman selling roasted plantain by the roadside comes to your rescue (not all heroes wear capes, some tie wrapper) and you pay for the goods. You have not only put money in the hands of the roasted plantain seller, you have also put money in the hands of her plantain supplier, who in turn puts money in the hands of the farmer and even the delivery truck driver and offloaders. The list goes on. Everyone makes money. That’s what the multiplier effect is.

So should Nigeria miss out on this potential for prosperity because people don’t have money right away? That’s absurd. 

Give them money to build their dreams! 

Let’s pump credit into education and reap prosperity for everyone

Only about 1% of Nigerians are in the universities. I’m sure if we were to conduct a study to find out the relationship between the level of education of Nigerians and the poverty rate, we’d discover they are married with three children. 

There are a few barriers to getting a quality tertiary education in Nigeria but the highest barrier of all is simply that people can’t afford it so they don’t bother. They focus on providing for themselves and their families instead. The sad truth is that this deprives them, and even their generations to come, of the chance to ever make it out of poverty. The poverty trap didn’t come here to play with anybody. 

There’s no denying that the student loan scheme in the US comes with its own wahala. Student loans in the US allow people who would never even have dreamed of a university education to attend some of the best schools in the world. The US’ global leadership is directly correlated to the quality of its education. Go figure!

Nigeria has now followed suit and introduced the Student Loan (Access to Higher Education) Act, 2023. Whether this is practical and sustainable remains to be seen but the idea is definitely welcome. With this, Nigerians can access quality education previously out of reach for so many. This could be pivotal to the quality of life for the beneficiaries’ generations to come.

With these loans, students get access to a good education; if they are focused and graduate with a good grade, they greatly increase their chances of landing a good paying job and living a productive and prosperous life. And guess what? The ability to earn the income they do over their lifetime can be directly traced to their access to credit. 

The logic applies too even if the student chooses to start a business after graduating. They create jobs for others, they pay taxes and they have more money for consumption. Those who benefit from the jobs they create also pay taxes and increase their consumption. Rinse. Repeat.

The deal gets even sweeter. Why? Because people with better lives are able to give their children better lives too. The value generated just keeps multiplying. Did I just solve the poverty trap or what??

The simple fact is, no great country has ever emerged without educated minds and the US leads the pack with robust financial support and credit for students. Without Nigerian funding education like our lives depends on it, we wouldn’t get anywhere.

Don’t turn off the money gun just yet: entrepreneurs need loans even more

It just makes sense to give money to people who have the capacity to grow it, doesn’t it?

Say an entrepreneur starts a business with a loan of N5 million. You know what this means for the economy? Jackpot. They create jobs. They purchase materials from suppliers. They pay consumption and corporate taxes. 

It doesn’t stop there. The suppliers are also able to create even more jobs with their increased income and every single one of them has to pay taxes to the government too. This same value chain is created even in small businesses. Remember the roasted plantain seller who saved you in traffic earlier? Take even the Uber drivers who take loans or take advantage of hire purchase options to buy a car and pay it off over some time. They’re big boys now o!

The fact is, everytime you give someone money, you empower them to create value. Cash injections end up becoming a powerful creative force to drive value creation in an economy many times over.

Credit. The gift that just keeps on giving. 

If credit is so great, who’s hoarding it and why?

The value the economy stands to benefit from accessible and affordable credit is apparent so where’s all the good credit? It’s there but lenders aren’t lending. Why? Because no one is  protecting them. We talk so much about borrower protection but if you hear the terrible things borrowers are doing to lenders on a daily basis, you’d quickly offer lenders a box of tissues for their hot tears.

Nigerians take loans and don’t pay back. This discourages lenders and forces them to limit the credit they offer to small ticket loans and high interest rates to account for their risk exposure. The problem here is that these kinds of loans are utterly useless to people who need a substantial cash injection to create significant value. 

The government needs to protect lenders too. They can’t expect to be able to meet the credit needs of over 200 million Nigerians alone. Or do they think they can? 

Nigeria isn’t the guinea pig and this isn’t an experiment. China did it already

If you want to know how effective credit is in transforming economies, just look at China. Their state-owned enterprises (SEOs) received low interest loans and the economic benefit was massive. With these loans, the SEOs were able to ensure economic stability, trigger substantial economic growth, reduce their unemployment rate and commit to undertaking large-scale infrastructure projects.

These loans came with their own challenges too but answer me this: Is China a superpower or no? 

Then that’s that about that.

Let’s even come back home to Nigeria. We’ve had economic miracles borne out of credit as well. Take Dangote and Otedola whom all the kids look up to. Despite hailing from wealth, Dangote took out a loan of N63 billion, inclusive of $75m from IFC, to build the Obajana cement factory. Otedola did the same with a much larger syndicated loan towards Zenon Petroleum and Gas in 2007. Even the telecoms giant, MTN, signed a loan deal for N200 billion just four years ago when it floated its shares on the stock market.

Dear Nigeria, think smart and think fast!

The case is clear for Nigeria.The Government needs to think smart and think fast.

For the Government to take heed and jumpstart the economy, here are a few no-nonsense but simple things they can do immediately:

The government should step in beyond borrower protection and protect lenders as well and encourage them to lend more. Of course, this should be done with recourse to checks that guide lending: ethical interest rates, due process, etc. 

The government can create a set of rules, regulated by the CBN that explicitly protects lenders without bureaucratic red tape: instead of lenders and borrowers dragging each other to court, lenders can report defaulters and get cooperation from defaulters’ banks to settle the loan. They should consider giving lenders access to use the global standing instruction (GSI) and putting it to much better use.

For the suggestion above to work, loans can be registered by lenders with a regulatory body and perhaps be given  a limit to what can be recovered on loans in default e.g lenders can only recover their principal, with no penalties or interest when a loan goes into default. In the same attitude of transparency, an increase in the interest rate must also be communicated to borrowers and the authorities ahead of time before implementation.This process should be seamless and possibly electronic.

In summary, if the government doesn’t use credit to leverage the economy, the exponential growth we so desperately need will never happen. The best time to start was years ago. The next best time is now.

If your employer won’t give you a staff loan, ditch them!

Access to credit in Nigeria is tough, limiting dreams and necessities. Companies offering staff loans isn’t a luxury, it’s essential for motivation and productivity. If your employer won’t help, it’s time to find one that will.

Your employer is probably demanding your arm, legs, and probably one of your kidneys. All fine and good; aren’t we all family? Not so fast: if they can’t do what families do by giving you a decent access to loans when you need it instead of loan sharks swimming around the murky waters of Nigeria, then maybe time you got another job.

You want to know why? Here we go!

In Africa, and especially Nigeria, we practically save for everything important for our lives. Rent, getting a car, paying school fees. Woe betides you if a nasty medical issue arises. That could be the end of you, or even worse a loved one. After all, we know most of us have poor savings.

Even much more, because there is no access to loans, most Nigerians aren’t able to live their dreams. They can’t go to good schools or send their kids there. They can’t live in their own homes. They can’t get a decent car. They can’t even get a good laptop to start working remotely. Oh right, even if they get a new laptop, what about getting a generator or solar inverter to keep the light on when PHCN strikes?

Getting a loan is one of the fastest ways to get things done. But getting a loan in Nigeria is treacherous. The bank you have been banking with for years is suddenly airing you or making demands even an angel can barely meet. The lending companies, on the other hand, are asking for interest rates so high you don’t know if you would give them your soul instead. You have also heard stories of how lenders disgrace people who were late to make payments.

No wonder less than 2% of Nigerians have access to credit.

Looking at the challenges of getting a credit when needed, it’s even 200% harder if you are working because this would be distracting, and demoralizing. And if you are slacking at work because you’re trying to get a loan, you may as well lose your job. Triple jeopardy! 

But you know what, don’t we turn to family when things go awry? Didn’t your boss just say last Friday that you’re family, to justify making you work the weekend?

So why isn’t your company lending you money? 😵

Don’t look confused. Companies offering their staff loans have been a staple of professional life for centuries. It’s almost not a privilege; it’s a right.

You wouldn’t even believe it, most of the middle-class to upper-class people in Nigeria today got a leg up in life with decent or cheap loans from the companies. Ask your CEO, Chairman, founder, etc. how life started for them. None of them was that thrifty or better than you – they all got loans at ridiculous rates to build the beautiful lives everyone admires. 

I for one got a cheap mortgage when I worked at United Bank for Africa without any background check. Thanks UBA! My first cars were gotten with zero interest company loans, I got home appliances through partnerships with my employers. 

While lending can be scary because many people don’t pay back, companies don’t have the fear that lenders have – they know you 100% in character and in truth; if you don’t pay your loan, you would be sacked. Oh! They even deduct the money from your paycheck and give you the balance. 

And it’s not because companies are nice (some are indeed very nice, like Lendsqr). Giving loans to staff keeps them motivated, focused, and happy. Taking away the distractions of hunting for loans at the time of need is super important for productivity and employee happiness.

And what can companies do for you? 

In truth, asking for a mortgage in this economy is killing even for the fattest companies. But at the minimum, they can help with personal loans to sort out things you can’t tell HR. They can help with asset finance to get devices, new generators (hoping you have the fuel to power it), inverter and solar panels. They can even help with loans for holidays – send you to far places so that when you come back, you are full of inspiration and deliver amazing quarters.

So what should you do? Just ask your HR for a company today. If she airs you, ask your founder, MD, Chairman, whatever. 

If your best friends and family can’t come to your aid when you need them, are they still friends or family? If your employer can’t save your hide when you need them the most, ditch them!

Being poor doesn’t make you a bad borrower

There is a general belief among top bankers and armchair experts that the poor don’t pay back their loans, and therefore there isn’t any basis to even let them have access to credit.

The arguments are many, and having fought with unmatched vim in many of these arguments, and I wonder how I have escaped without a black eye most times.

In a country where over 90 million people are below the poverty line, and many just want a chance to move up the ladder (those who wait for the Government to move them shall wait forever), then it is elitist and dangerous to jump into these conclusions without an adequate assessment of the realities.

The poor don’t have money to pay back

Well, yes, this is true. One of the 4 Cs of credit is capacity, which is a core tenet of credit; it’s only sensible to never lend to anyone beyond what they can pay back and to structure it in a way that doesn’t keep them in a financial chokehold (na money dem dey find, no be say they kill  person).

It is equally as important to note that loans should also be tied to productive activities that are sure to yield enough return to pay them back. Being poor does not disqualify one from being productive. Someone who hawks Gala on the streets of Lagos with N0 to his name, taking a N10,000 loan in the morning to sell in traffic, has a higher chance of paying it back than a fat banker who took a loan to buy business class tickets for himself and his side chick to Dubai (we know your stories).

The poor have a history of not paying back

Nigeria is replete with tons of stories of government interventions where nobody paid back their loans. It makes you wonder when loans and cash gifts became synonymous. One might think this to be true until you discover that most of these loans were run by syndicates who arranged for most loans to be disbursed within their networks. These people saw an opportunity to share the national moi moi and divide the national cake.

While this narrative seems to have taken over, on the flip side, I can point you to thousands of lenders who extend daily credit to market women around Nigeria. These market women pay back consistently and reliably. Chimamanda couldn’t have said it better; beware of the dangers of a single story.

The poor have no credibility

Everyone assumes the poor would lie to get a loan. Yes, Nigerians lie to get loans, but this isn’t a problem of poverty; it is a character problem. Poverty does not directly translate to a lack of credibility, and neither does the Nigerian elite starter pack come equipped with credibility (selective amnesia for AMCON defaults still?) The quantum of the bad loans in the Nigerian banking system, powered by borrowers with zero character, was for the rich and mighty.

The lack of character is a personal problem, and this is due to the torn national value fabric, which is on its knees begging for mend.

You can’t catch the poor if they don’t pay back

But are the rich not still running?

Someone owes you N20,000 in unpaid loan; you spend N10,000 in locating their place; what would you do when you get them? Nothing! In all honesty, I concur that pursuing a poor person who hasn’t paid is a waste of effort and resources.

Unfortunately, almost the same applies to everyone except the middle class. The rich guys owe banks trillions, but they are the ones suing their creditors. A tale of the tail wagging the dog.

The poor have no credit history

The poor indeed have no credit history. And they won’t have a credit history because of two critical reasons:

One, most Nigerians have never gotten a chance to get a loan before, and if you never had a loan, you can’t have a credit history … but you need history to qualify for most loans (which came first? The chicken or the egg?)

Two, the cost of access to a credit bureau for the small lenders that only do microloans and serve a small portion of the market is unbearable. Imagine racking up credit bureau costs for 1,000 loan requests when only about 100 would qualify for loans and even less will pay back (when next you see the owner of a small lending business, hug them and then squeeze 50k in their hand, those guys are trying).

Why do we need to kill these narratives?

It is dangerous to use intellectual laziness to block over 1 billion people in Africa and 90 million people in Nigeria from credit simply because we can.

Our inability to find a working model isn’t the fault of the poor but the fault of those who may not be putting enough effort into solving these problems. The truth is, if we don’t solve these credit problems, Africa won’t grow, and the poor will one day rise against the rich (#eattherich).

Previous narratives based on elitism have been proven to be false. They once said phones aren’t for the poor, but today, the same poor are the source of life for MTN and others. They once argued that the internet wouldn’t be affordable, and today, Africans are addicted to the internet. I wouldn’t even call it a lack of wisdom. They know the truth. But the gods forbid poor people to have access to the same things as them (gatekeeping 101).

Some banks and fintechs are already changing these narratives

Don’t be alarmed yet; all hope isn’t lost. We’re already seeing the rise of lending-as-a-service tech companies such as Lendsqr, Indicina, Evolve credit, etc., creating cheaper and scalable lending stacks for small-time lenders, which allows them to reach the mass market more cost-effectively.

Some banks, such as Sterling, Access, and FCMB, are at the forefront of mass-scale consumer lending. These banks are giving loans to Nigerians who are not their customers as they understand that consumer credit is the future.

Disclosures: I’m the founder of Lendsqr, and I work there.

It’s destructive for lenders to punish good borrowers

Loans in Nigeria are usually expensive due to high default rates and lenders’ flawed business practices. Lenders need to focus on the right things and create a sustainable lending model.

Loans in Nigerians are quite expensive and it’s due in one part to the high-default rate but also  because of what I would describe as  lenders destroying their chances of developing a good business. You’re probably wondering why I would say this, so if you would be so kind as to allow me do you a favor and relieve you of your rose-tinted lenses .. 

This is how lending in Nigeria typically goes…

Lenders know how profitable solving the credit problem can be but they also know a significant portion of their borrowers won’t pay back. Oh please there’s no surprise here anymore, Nigerians have taken it upon themselves to always treat loans like an inheritance from their grandparents. At this point, you might be tempted to play the devil’s advocate and argue that the poverty level and weak economic conditions pose a significant hurdle to repaying loans for the average Nigerian, I won’t argue with you but I will say this; beyond the financial factors that may affect loan repayment, at the core of default is generally Nigerians questionable demeanor towards loans – zero character! The causal relationship between hardship and defaulting on loans is not as airtight as one might like *chuckling in AMCON seizures*.

So what happens? Lenders increase the interest rate on the loans to cover these losses they envisage because of these bad actors and the income to cover these defaults would be paid by those who are “foolish” enough to pay back. Ohooo!

Here’s the fallout 

Lenders might believe this manner of conducting business is foolproof in that as long as it takes care of the bottom line, nothing else matters but instead of solving the problem, it makes it so much worse.You see, those who are good for the money and actually intend to do business in good faith, see the crazy interest rate, say “your fada!” and just forgo the loan. Guess who’s left to do business with? 

The desperate and the wicked. 

Those who are desperate have no option but to take the loan but we all know where desperation takes anyone and then you have the wicked who have no intention of paying anyway and so don’t even mind the interest rate and proceed to take the loans (Lagbaja, nothing for youuu).

Where does this leave lenders?

So after all is said and done, the reality for lenders is that:

High interest rates push away those most likely to repay their loans (because they care the most about what to pay back). 

And 

High interest rates mean nothing to those who won’t pay back anyway (talk about a double-edged sword). 

It’s pretty obvious the tactics have to change, if not these lenders have no way of succeeding. The only way that a lender would do well is with an appropriately priced interest rate

What happens to the risk of default? 

Wouldn’t the lender be wiped out?

The best way to build a sustainable lending business is in the Risk Acceptance Criteria (RAC), the technology, and the loads of data to go with it; that’s how to really address the pain points associated with lending.

Anything else, such as raising interest rates, is completely destructive and there is no way out of it; it’s like a cobra eating its tail.

In what world does one put a band-aid over a headache and wait for relief?

Lendsqr is solving the African credit problems

My diverse experience in banking and technology led me to recognize Lendsqr’s potential to drive African economic growth. With millions seeking credit, our lending infrastructure aims to democratize access to finance, empowering dreams across the continent.

With years spent in banking, technology, and payments and a background in engineering, I’m able to understand how foundational systems become the catalyst for growth. This understanding of foundational systems gave me the belief that Lendsqr has a unique opportunity to spur the growth of the African economy by being a leading lending infrastructure provider across Africa.

With a population of 1.4b people, the majority born just after the Y2K bug, the demand for smartphones, internet, the good things of life, is growing at a rapid pace. Many of these, including education, health, etc. would need to be financed with credit. But access to credit continues to be a challenge which becomes a barrier for  the young woman in Accra from realizing her dreams and the lad in Kampala from going to the school of his choice.. 

We have witnessed the rise of digital lenders in Africa, particularly Nigeria and Kenya. This is driven by the massive adoption of smartphones, the continual reduction in the cost of internet data, and the relentless push of financial inclusion by central banks and fintechs going to the last mile with agency networks. While some of this growth has been driven by COVID over the last two years, experts are unanimous in the belief that the changes are a signal of future growth for Africans.

What problems do we have?

Africans continue to struggle to get credit, often in life and death scenarios. And even when they do get it, the interest rates charged are usually so punitive; many have commited suicide due to the pressure from lenders and their inability to repay their loans. On the flip side, lenders continue to deal with high-default and zero consequences for serial defaulters.

While technology and access to data powering the underwriting process can solve these problems, lenders lack access to quality data and sustainable technology, and even when those are available, they are so expensive that even VC backed lenders can hardly afford them. The diverse integration needed by a lender to various KYC providers and  payments systems also requires a level of expertise and focus that these lenders do not have.

Lenders just want to lend; not to become programmers.

How is Lendsqr solving this problem?

Lendsqr is building a cutting edge lending infrastructure powered by technology, data, integrations, and an ecosystem; providing lenders an easy way to digitize their lending in a scalable, sustainable, ethical, and most importantly, profitable way. Lendsqr has built integrations to some of the best payment processors, leading credit bureaus, and transactional data providers. These integrations and ecosystem play are often extremely difficult to pull off, providing Lendsqr with a unique opportunity to position itself at the confluence of credit and what people use credit for – shopping, health, cashflow, etc. 

By enabling smaller lenders to scale up, Lendsqr is guaranteeing Africans, starting with Nigerians, access to credit that would create a powerful long-term, consequently expanding our economy significantly in the coming years.

And this approach isn’t strange. We’ve seen the humble WordPress power 37% of global web pages despite large content owners like CNN, WaPo, etc. Shopify and Etsy power global e-commerce despite the might of Amazon and eBay. Lendsqr will power thousands of lenders who want simple, affordable, and smart but invisible tech to lend to millions of Africans.

Over the last couple of years, Lendsqr has helped hundreds of thousands of Nigerians have access to credit while helping lenders reach at a scale that is unprecedented and with technology previously found with only the highest funded VC backed lenders. But starting from March 1, 2022, Lendsqr would be making the same technology available to lenders for free. Any lender can sign up and start disbursing loans to their first customers within 5 minutes. The team has done the magic of hiding all the madness of being a digitized lender behind a single click. 

I’m excited to be part of this ecosystem of lenders, partners, data providers as we begin our journey to use technology, data, and partnerships to guarantee credit for every man and woman in Africa and beyond.