Category: General

Read about Adedeji’s take on technology, payments, financial inclusion, career, and credit.

Addressing Nigeria’s Overlooked Lending Opportunities

Improving access to credit is crucial in Nigeria due to high poverty rates. Only 2% of adults currently have loans, leaving a significant credit gap. Lenders face certain challenges, but with the right strategies in place, we can solve these problems and tap into this industry.

Introduction

Improving access to credit has been high on the agenda of several international organizations and policymakers for many years. This is mostly because a large part of the world lives in poverty, with individuals and businesses lacking access to credit [1]. Nigeria has a high poverty rate, with about 86 million people living in extreme poverty and about 146 million people living below the upper-middle-income line [2]. These contribute to why a lot of individuals require access to credit to meet short, medium- and long-term financial needs.

Access to credit and financial inclusion are closely related [1], and they both play an essential role in improving the structure and quality of a country’s financial system, which drives economic growth [4]. According to CBN’s National Financial Inclusion Strategy (NFIS), credit has been identified as a key product to increase the country’s financial inclusion [4]. CBN has set a 2020 target of the Nigerian adult population having access to credit at 40%, which means that about 42 million Nigerians should have access to loans. We are, however, far from this, as only about 2% of the Nigerian adult population have been able to access loans from banks and other financial institutions [3], leaving a variance of about 38%.

This huge variance presents a tremendous opportunity for lenders (commercial banks, microfinance banks, Fintechs, and other lending companies). This article explores the potential credit gap in Nigeria that lenders can address, as well as the extent of value which stakeholders within the lending ecosystem can create. The article also focuses on significant challenges being faced by lenders today and ways these challenges can be addressed to effectively meet the country’s credit deficit and financial inclusion targets.

A quick look at Nigeria’s Credit Conditions

Before arriving at an estimated credit gap for Nigeria, it would be vital to consider the different types of credit and the various segments of borrowers. It would also be important to explore lending trends and conditions within the country. Regarding loan types, loans to customers are either secured or unsecured. Secured loans (e.g., mortgage, car loan, etc.) are connected to tangible collaterals and typically come with lower interest rates because of the lower financial risk attached. Unsecured loans (e.g., personal loans, payday loans, credit cards, etc.) are not protected by any collateral, and they typically have higher interest rates due to the financial risk involved. While unsecured, there should be legal frameworks and policies in place to protect lenders especially in situations where borrowers default on their loan payments.

According to CBN’s Credit Conditions Report (Q4, 2019), the availability of secured credit to households increased over the year and is expected to keep increasing in the next quarter. This expected growth in the supply of secured credit is met with a corresponding expected increase in demand for secured credit by borrowers [17], which is complemented by CBN’s directive to increase loans to individuals and businesses [8]. A growth trend is also the case for unsecured credit, as lenders expect the availability and demand of unsecured loans to increase in the next quarter [17]. This expected increase in unsecured loans to Nigerian households is complemented by a forecasted general growth of unsecured lending in Nigeria, which is mostly driven by the proliferation of digital lenders that are using data and technology to grow consumer and SME financing in the country.

Loan default rate, which represents the percentage of outstanding loans written off by lenders due to the inability or unwillingness of borrowers to pay back, or after an extended period of missed payments, has also improved in recent times and is expected to keep growing in the next quarter [17]. Lenders are, however, forecasting that loan pricing and interest rates will remain unchanged in the coming quarter. This means that a lot of lending organizations in Nigeria have not leveraged data and analytics to improve the risk management process, which can create opportunities for lower interest rates. There is the opportunity for lenders to adopt open banking, which creates an opportunity to share data using standard Application Programming Interfaces (APIs) and has the potential to reduce delinquency and make loans cheaper and more accessible.

NGN 51.8 Trillion and counting – Estimated credit gap in Nigeria

Improving access to credit to Nigerian individuals and businesses has been high on CBN’s agenda in recent times, with the apex bank unfolding measures to increase lending to consumer, mortgage, micro, and SME sectors. One of these measures is the increase in the Loan-to-Deposit ratio from 60% to 65% [8], which has led banks to give out more loans to comply with CBN’s directive. According to CBN, Nigeria’s credit gap is about NGN 1.7 trillion [9,10]. This has been estimated as the difference between loans currently being given out by financial institutions and the loan amount that financial institutions will be required to give out to maintain LDR of 65% (assuming current deposit figures). Based on 2019 figures, Nigerian banks gave out about NGN 13.6 trillion loans [8], which were about NGN 1.7 trillion short of the loan amount required to maintain LDR of 65% (NGN 15.3 trillion).

This approach to estimating the credit gap in Nigeria might not be holistic as it solely leverages LDR as an instrument to ascertain what the credit needs of individuals and businesses are. The approach has a limited view of consumer credit need, especially with how this can be mirrored to Nigeria’s working population. Also, the approach focuses on only commercial banks as lenders. It does not consider other lending institutions (Fintechs, microfinance banks, Credit associations, etc.). It is, therefore, important to make other key considerations while estimating the available credit deficit, which can be addressed by lenders in Nigeria. This credit gap estimation will focus on only consumer, micro and SME lending, as 95% of loans currently provided in Nigeria have a value of above NGN 50 million [11], meaning most of the loans are already being provided to large corporates.

According to lending data from a large commercial bank and leading FinTech, the average working adult in Nigeria takes a loan of about NGN 23,000, seven (7) times in a year], which amounts to an annual figure of NGN 161,000. World Bank has estimated the number of working adults in Nigeria to be at 62.4 million in 2019 [12]. This means that the estimated market size for consumer loans is about NGN 10.1 trillion. To ascertain what portion of the market size represents a ‘credit gap’ that needs to be addressed, we can apply the credit variance of 38%, as only 2% of the targeted 40% of the Nigerian adult population currently have access to loans [3]. This brings the estimated consumer credit gap to about NGN 3.8 trillion.

Micro, Small, and Medium Enterprises generally experience greater financial obstacles compared to large corporates. MSMEs enjoy less access to credit and other forms of external finance and face higher transaction costs and higher risk premiums [13]. This is mostly because financial institutions are often reluctant to lend money or provide financing to companies with limited or no credit history [14]. This has resulted in an MSME credit gap that lenders can address. According to CBN, the existing financing gap for MSMEs is about NGN 48 trillion, with more than 17.5 million MSMEs seeking credit and other forms of financing [15].

Combining the credit gap for consumer and MSME segments, lenders can address a credit gap of NGN 51.8 trillion through secured and unsecured loan products that will help to boost financial inclusion and economic growth. However, it is also vital to note that very excessive credit growth, coupled with high inflation and default rates, can lead to a financial crisis [6]. Strong growth in credit has preceded many episodes of financial instability in the past, resulting in the materialization of systemic banking crisis [7]. Hence, it is important to not get carried away while implementing measures to address Nigeria’s credit gap and drive credit growth. There should be a focus on ensuring credit growth is not too excessive that it leads to a national financial crisis. Further studies and statistical analysis can be carried out to measure excessive credit provision in the economy and identify optimal interactions between Nigeria’s credit demand and supply factors, towards ensuring credit growth is not too excessive that it leads to financial instability.

Impact of the estimated NGN 51.8 Trillion Credit Gap

The credit gap, which is characterized by limited access to credit for individuals and SMEs, has led to hampered growth in financial inclusion and, consequently, stunted economic growth. Limited access to consumer credit also hinders consumer spending and consumption [1]. This directly impacts the ability of consumers to meet their immediate, medium-term, and long-term financial needs. Some of the practical issues being faced by Nigerians include limited ability to conduct an upfront purchase of assets (cars, houses, phones, etc.) and make upfront payments for experiences and services (travel, education, rent, etc.). This had led to Nigerians mostly having to save to meet financial targets, which can be very difficult.

Furthermore, limited access to credit has led to limited growth for MSMEs, as a lot of these companies do not have the required financing to scale the business and invest in appropriate resources and capabilities (people, technology, processes, etc.) [18]. MSMEs are vital to the development of any economy as they provide opportunities for employment generation, the advancement of local technology capabilities, economic diversification, development of local entrepreneurship skills, and forward integration with large-scale industries [16]. Hence, it is very crucial for participants of the lending ecosystem to develop the right capabilities to improve access to credit for individuals and MSMEs.

Other benefits to be derived if the credit gap is addressed include improvement in the country’s manufacturing and agricultural industries [19], increased opportunities to improve health, education and innovation, and general improvement in the quality of living [20].

Major challenges faced by lenders and other participants of the lending ecosystem

  • Poor credit reporting – One of the key processes within lending is the management of credit risk. Nigerian lenders currently combine customer information with credit reports from Credit Bureaus to ascertain customers’ risk and determine creditworthiness. This is not holistic, and it may leave out key information about a customer’s financial health, which could be crucial to determining what the customer’s risk profile should be. This also limits the extent to which lending organizations understand potential borrowers, as well as keeping loan prices and interest rates high.

Also, the traditional credit scoring process does not serve MSMEs well [14]. Often, one single piece of unavailable information about the MSME can prevent the assessment and consideration of the organization. Due to this limited access to rich customer data, lending organizations mostly provide loans to individuals and organizations that have adequate credit information history, thus leaving out potential borrowers with ‘thin-credit-files’ (potential borrowers with limited or no credit history).

If we consider a real-life scenario, a Credit Bureau API check costs between NGN 200 – NGN 500 and obtaining a transaction statement for a loan applicant from NIBSS’ mybankstatement service costs NGN 400 for a JSON file and NGN 250 for a pdf. If we assume a lender assesses 1,000 potential borrowers, that’s already a cost of about NGN 500,000 on just conducting credit checks, and there is no guarantee that all the loan applications will be approved. If the loan amounts are small, the lender will only be able to pass on a maximum of 1% of the loan disbursed to the borrower which would not be enough to cover the cost of processing.

  • Limited collaboration between participants of the lending ecosystem – Participants of the lending ecosystem (commercial banks, Fintechs, microfinance banks, credit associations, other non-bank lenders, credit bureaus, regulators, etc.) play different roles across the lending value chain. There currently is no standard framework (such as open banking) that drives collaboration within the ecosystem. Data currently exist in silos, with each participant having a fragmented understanding of each customer, as opposed to a holistic and detailed understanding, which would be the case if participants adopt full collaboration and standardized data sharing.
  • Inadequate technology infrastructure – Some lending organizations in the country have invested in technology capabilities (applications, infrastructure, network, etc.) to automate the lending process and ensure efficiency and speed. Interactions with multiple lending organizations in Nigeria have, however, shown that there is limited reliance on relevant digital and emerging technologies to support the end-to-end lending process (loan origination, credit risk management, loan disbursement, loan performance monitoring and loan collections). Also, these technology capabilities are not nimble enough to cater to the growing availability and demand for secured and unsecured lending. Many financial institutions also lack robust technology platforms that seamlessly integrate risk modeling with reporting [22].

Lenders will need to invest in digital and technology capabilities (core lending applications, predictive analytics, omnichannel experience, etc.) to remain agile in the provision of tailored loan products and services to Nigeria’s credit market.

  • High default rates – According to the CBN’s credit conditions report, loan default rates are expected to reduce in the coming years [17]. However, due to limited access to customer information across the financial ecosystem, lenders currently don’t have a full view of customers’ financial health. Hence, it is difficult to accurately identify and separate potential borrowers that will have difficulty in paying back their loans from those that won’t. This has led to an automatic reduction of the potential credit market size and has also kept loan prices high, as lenders tend to price loans high enough to cover the risk of loan defaults.
  • Inadequate legal infrastructure – The legal infrastructure in place to protect lenders, borrowers and other participants of the legal ecosystem is not adequate to drive credit growth. There are a lot of cases where borrowers are easily cheated or have to pay very high-risk premiums to access credit. There are also cases where lenders are exposed to financial loss when borrowers are unable or unwilling to repay loans. In cases like this, the cost of debt recovery can be very high and most times, lenders have to let go of these defaulted loans. An adequate legal structure should provide the relevant protection to ensure lenders and borrowers are not hesitant with providing and accessing credit.

Initiatives to address Nigeria’s Credit Gap

  • Improve credit risk management and reporting. Borrowers shouldn’t know more about their financial situation than lenders do [22]. Lenders should have sufficient information about potential borrowers and have the right tools to conduct a detailed risk assessment to understand customers’ financial health and risk profiles, even more than the borrowers understand themselves. Lenders should integrate alternative sources of data, leveraging concepts such as open APIs, blacklists, etc. to improve credit reporting.
  • Explore new and innovative loan products to address the needs of Nigerians. In essence, Nigerian lenders need to be creative to develop loan products and services that are tailored to the needs of Nigerians. Due to the availability of data, lenders can fully understand their prospective and existing customers and develop custom offerings that will meet their needs. An example is how Flipkart, an Indian ecommerce company, commenced the provision of loan products to consumers and sellers on its platform to increase consumer credit growth. Another example is Branch, a Fintech organization, providing loan products to merchants based on their sales history and financial projections, which are available online. Other examples include how lenders can price loans differently for customers based on the result of their credit assessment and risk profiling.
  • Increase lending to underserved borrower segments. While addressing Nigeria’s credit gap, lenders should also focus on underserved borrower segments, such as thin-credit-filed customers and potential borrowers from the untapped informal sector of the country. For these segments of customers, lenders can build risk models that consider other forms of data (social networking data, telecommunication usage data, sales data, etc.) in other to gain a detailed understanding of each customer and ascertain if they’re creditworthy. Lenders can also implement channels (mobile, online, agents, USSD) to provide accessibility and convenience to these customers.
  • Governments and Regulators should create an enabling environment and policies to drive credit growth.
    While the CBN has taken some measures (such as the LDR directive) to improve
    access to credit, additional steps should be taken to ensure that both lenders
    and borrowers are protected. Governments have also made some steps to increase access to credit (TraderMoni, MarketMoni, FarmerMoni, National Collateral Registry, etc.). Governments should continue to contribute to developing and implementing policies that will create an enabling environment for credit growth.
  • Transformation of lending operations – Traditional lenders, need to undergo digital transformation to transition into agile lenders. Lenders will have to deploy a robust technology platform with seamlessly integrated capabilities to support risk modeling, reporting, loan origination, loan performance management, API management, etc. Lenders will also need to provide an omnichannel experience to individuals and MSMEs to ensure that they have access to loans, at any time, and on any channel of their choice.

Conclusion

Nigeria has an estimated consumer and MSME credit gap of about NGN 51.8 trillion. This presents a very huge opportunity for lenders, but closing the credit gap will require significant effort from private institutions, governments, and regulators. Lenders will need to develop key capabilities that will make them more agile and positioned to meet the needs of customers. They will need to implement sound business models that will adequately serve the different segments of individual and MSME borrowers. Governments and regulators will need to create the enabling environments that will improve access to credit, while also contributing significantly to economic development and job creation.

References

  1. Velpuri M, Sharma M, Maringanti C, Pidugu A and Velpuri J Improving Access to Credit in Property Markets Using Blockchain – FIG Proceedings (2017) [online]. Available: https://www.fig.net/resources/proceedings/fig_proceedings/fig2017/papers/ts01i/TS01I_velpuri_aman_sharma_et_al_8515.pdf
  2. World Bank Data [online]. Available: http://povertydata.worldbank.org/poverty/country/NGA
  3. EFInA Access to Financial Services in Nigeria 2018 survey
  4. Sulong, Z. and Bakar, H.O., 2018. The role of financial inclusion on economic growth: Theoretical and empirical literature review analysis. J Bus Fin Aff, 7(356), pp.2167-0234
  5. Access Bank [online]. Available: https://www.accessbankplc.com/pages/Media/access-news/Access-Bank-Hits-over-N1Billion-in-Digital-Lending.aspx
  6. Lang, J.H. and Welz, P., 2017. Measuring credit gaps for macroprudential policy. Financial Stability Review, 1.
  7. The theory-based household credit gaps in this special feature are based on the
    methodology and results in Lang, J. H. and Welz, P., “Semi-Structural
    Credit Gap Estimation”, mimeo, 2017
  8. Fitch Solutions: formerly BMI – Nigeria Banking & Financial Services Report, Q4 2019
  9. A Lever for Consumer Lending (This Day), 2019 [online]. Available: https://www.thisdaylive.com/index.php/2019/08/28/a-lever-for-consumer-lending/
  10. Can
    Retail Lending Change in Nigerian Banks? (Business Day), 2019 [online].
    Available: https://businessday.ng/technology/article/can-retail-lending-change-in-nigerian-banks/
  11. National Bureau of Statistics (NBS) – Selected Banking Sector Data: Sectorial Breakdown of Credit, ePayment Channels and Staff Strength – December 2019
  12. World bank data [online]. Available: https://data.worldbank.org/indicator/SL.TLF.TOTL.IN?locations=NG
  13. Beck, Thorsten & Demirguc-Kunt, Asli, 2006. “Small and medium-size enterprises: Access to finance as a growth constraint,” Journal of Banking & Finance, Elsevier, vol. 30(11), pages 2931-2943, November.
  14. Big Data, Smart Credit – Closing the SME finance gap through artificial intelligence and machine learning. White Paper (2018)
  15. Nigeria’s small businesses suffer N48 trillion funding gap (Guardian), 2019 [online]. Available: https://guardian.ng/news/nigerias-small-businesses-suffer-n48-trillion-funding-gap/
  16. Central Bank of Nigeria (CBN), Development Finance [online]. Available: https://www.cbn.gov.ng/devfin/smefinance.asp
  17. Central Bank of Nigeria (CBN) – Credit Conditions Survey Report Q4 2019
  18. Oaya, Z.C.T., 2017. The impact of SMEs financing on business growth in Nigeria: A study of Keffi and Mararaba metropolis. International Journal of Innovation and Economic Development, 3(2), pp.44-55.
  19. Aina, O.C. and RTP, A., 2007. The role of SMEs in poverty alleviation in Nigeria. Journal of Land Use and Development Studies, 3(1), pp.124-131.
  20. Lederle, N., 2009. Exploring the impacts of improved financial inclusion on the lives of disadvantaged people (Doctoral dissertation, Heriot-Watt University).
  21. KPMG – Ten key credit risk & lending challenges, 2017 [online]. Available: https://advisory.kpmg.us/content/dam/advisory/en/pdfs/top-ten-credit-challenges-brochurev5.pdf
  22. World Bank Group – Improving access to Finance for SMEs, 2018
  23. Central Bank of Nigeria (CBN) – Guide to Charges by Banks and other Financial
    Institutions in Nigeria [online]. Available: https://www.cbn.gov.ng/out/2017/fprd/guide%20to%20bank%20charges%20circular%20to%20all%20banks%20other%20financial%20institutions%20and%20mobile%20payments%20operators.pdf

Visa buying Interswitch would upturn Mastercard’s game

In December 2010, Helios Investment Partners led an acquisition of a majority interest in what is now Africa’s first fintech unicorn – Interswitch. A decade later, Visa’s $200M funding confirms the hope of every investor in the first 10-12 years of their investment, an exit – Initial Price Offering (IPO) in this instance. What is more interesting is that Visa has been strategically acquiring fintech assets over the last few years and now has investments in 3 of the top fintechs in  Nigeria – Flutterwave, Paystack, and Interswitch. 

However, this strategy could go in more interesting ways and not always how you expect. I promise I’m not a conspiracy theorist – stay with me. 

Interswitch’s market dominance in Nigeria is nearly impregnable. Visa on the other hand, despite being a global leader, continues to play third fiddle in Nigeria, Africa’s biggest market. A little bit of history; Visa allegedly used to own 40% of ValuCard, now Unified Payments Services Limited (UPSL) but exited the company in 2012. At the nascent age of card payments in Nigeria, Visa was the dominant Chip and PIN card and the Visa Electron, its flagship. Card payments were quite unstable and domiciliary accounts were non-negotiable if you wanted to shop abroad with your debit card. The credit card was unheard of and even when they called some credit cards, they were 100% cash-backed. Talk of absurdities.

Enter Mastercard. 

While Visa card users were struggling, Mastercard swept into Nigeria and partnered with GTBank and Interswitch to launch the Naira Mastercard. Before anyone could say Jack Robinson, other banks had jumped on the train and Mastercard was crowned the Nigerian King of Cards. Overnight, everyone could shop abroad without hustling for FX; the pain of online payments became a thing of the past; banks earned revenue like bandits. The Mastercard international game was so profitable it accounted for 75% or more of profits declared by digital banking teams. 

Fast forward to the present day. 

Of the 60m cards in Nigeria, Mastercard is about ~43% of the lot while  Verve accounts for ~45%. The rest are Visa cards. Interswitch is a big player in this space, I mean, you can’t be worth $1B if you are playing around. They drive 100% of Verve transactions, about 25% of Visa and 95% of Mastercard. 

But what would happen if the dynamics change? What if Visa’s $200M investment in Interswitch leads to further investments before or after the IPO that then makes Visa the majority equity holder in Interswitch? 

If and when that happens

A  number of things could significantly change the face of payments in Nigeria. For starters, Verve cards would be accepted globally on the Visa network, suddenly giving the brand the legs it has tried to have for the last 9 years. Visa would probably convert all Verve cards to Visa, immediately putting Mastercard and Visa percentages at par. 

Should this happen, Mastercard will not siddon look, after all, they did not come to Nigeria to count bridges. It would be extremely unstrategic to let your biggest global competitor carry 95% of your traffic in the largest market on the last frontier.

What then could Mastercard do? 

The folks at Mastercard are probably thinking about the same thing. At this stage, it’s best to rapidly de-risk transaction transport. The alternative would be to back another switch and/or processor in Nigeria. Unfortunately, Paystack and Flutterwave cannot help with this; as sexy as they are, they are just Payments Services Providers. The game to become switches isn’t for the faint-hearted and it takes a gazillion years to connect a switch to every bank. If Mastercard decides to hit the ground running, they could acquire an existing switch or processor that is connected to every bank and is able and certified to carry Mastercard traffic. That leaves just Network International (NI), Etranzact, and 23-year-old Unified Payments in play. 

Mastercard already owns 10% of NI, which processes most of the credit cards in Nigeria. Using NI remains a viable option to drive Mastercard traffic in Nigeria but I’m not sure that NI as a company has what it takes to play the Nigerian game; it has been struggling for a piece of the pie for years and Mastercard’s 10% isn’t enough to give it the teeth it needs to take a good bite out of the chunk. Etranzact, on the other hand, is listed with a public valuation which makes acquisition easier and more transparent. They also have about 5 licenses covering processing, mobile money, etc.

United Payments might be an old workhorse but has previously processed Mastercard for Access Bank. The company also has a rich set of licenses to play toe-to-toe with Interswitch (Visa) and is currently the largest processor of Visa transactions in Nigeria. 

Should this sequence of events occur, there is no telling how regulators will react; the Okada ban has taught us this. While they love competition, they have always supported local standards like NIP and Verve. Mastercard and Visa going toe to toe further solidify a duopoly of global card giants in Nigeria. This does not mean it won’t be approved however both companies will likely come under increased scrutiny.

Banks so far haven’t liked dominant players as they create imbalance and stifle innovation and pricing. Visa and Mastercard will be caught in the middle trying to please banks. I expect Mastercard to win this round as they already have a history of understanding bank needs and creating the right alignments with incentives and programs. Or how do you think they won the market?

The fintech ecosystem will develop as both Visa and Mastercard would bend over backward to win players over. As usual, they will naturally be drawn to the card network with the more receptive team and better terms of engagement and Mastercard must remain this. 

While the Interswitch play looks interesting, and a Mastercard could buy either of UPSL or Etranzact, the three targets lack a good API play which is dominated by the duo of Flutterwave and Paystack. Knowing that API is the next big thing in payments and banking, the next contention would be to shore up the traditional ISO play by acquiring any of these as an icing on the cake. How this would play out would be an interesting game to watch. Pass me the popcorn. Visa and Mastercard are both investors in Flutterwave while the former has a stake in Paystack as well. Knowing how VIsa throws cash around, I wouldn’t be surprised if it buys both of them, mash them together, and layer them like fondants on Interswitch. 

But then, for all we know, nothing may happen beyond this investment.

Uber killed Lagos Yellow Cabs. GoKada may kill Okadas

Uber killed Lagos Yellow Cabs. GoKada may kill Okadas

Uber came to Lagos around 2014 and went straight for the middle-class crowd albeit, that market wasn’t fat enough. They soon found out that any businesses targeting recherché segments in Nigeria never last long. Uber pivoted as the recession gradually wore off as ride-hailing became the go-to for almost every middle-classer.

It didn’t take too long before a pricing war ensured. Boy oh boy, it was bloody! By the time the smoke cleared, it was you and your cousins, that had the last laugh. Go on soun!

Baba Simbiat, the yellow cab driver was the collateral damage.

As expected, ride-hailing became so successful in Lagos that it killed Yellow cabs in high-brow areas. After all, only the well-to-do were taking yellow cabs before, so they all just ditched loyalty for comfort and value. Or why would you prefer to stand in the sun to roast or in the rain to take a public bath when you can get Uber at your doorstep with just an app? With a zero-brain-needed simple app, you request your ride and a (sometimes) decent man or pretty lady (on your lucky day) pulls over in an air-conditioned Toyota Corolla after some 10 – 15 minutes. How easier and fulfilling could commuting be?

To make matters worse for Baba Simbiat, Uber charges 33% less and ensures that you get as comfortable as you could be because the driver knows how much a five-star rating on his feedback dashboard could do for him. Baba Simbiat doesn’t give two flying horse legs. Woe betide you if you are deemed to be dressed indecently, Baba will remind you that your mom failed parenting 101.

Putting that into perspective, you pay N1,000 as the Uber fare for a 9 km distance, but Baba Simbiat will charge your sorry ass nothing less than N1,500 for the same journey in his rickety cab. How cruel! It’s like being asked to choose between Shawarma and Agege bread.

Funnily enough, Uber was not the first guy on the block to try out technology on transportation, but they seem to have done their homework well to have their model scale. The first shot at the use of technology for transportation in Lagos dates back to 2009 when the “Red Cab” was launched. Unfortunately, Citrans Global Limited, operators of the “Red Cab” failed to leverage on its first-mover advantage.

Since Uber’s entrance into the Nigerian market, a flurry of other ride-hailing platforms has emerged, some of which include; Taxify, NaijaTaxi, CabMan, PamDrive, SmartCabs, Holy Cabs, Oga Taxi, GoMyWay, Alakowe, Smart Cab, Jekalo, Ridebliss amongst others.

But all that is history for those that care to know…

But then. traffic in Lagos has become so bad that a baby born at the start of one in the morning is old enough to enter JS 1 before it clears. Consequently, the utility of Uber is trending towards zero on bad days.

We are always in a hurry to get to our destinations and Okada is the next best thing. But then some of us can’t be found dead, alive, or even comatose at the back of an Okada and it’s not because of feeling fly; A trip to Igbobi will convince you. Nevertheless, Gokada and Max.ng have brought the Uber model to Okada business in Lagos.

The Gokada way makes a whole lot of sense if you don’t want to spend the rest of your eternity growing old inside the toxic Lagos traffic. And they are getting cheap enough to make a small dent on the regular Okada business; probably in the same high-brow areas.

Fortunately for the ingenuity of Chinedu Azodoh and Adetayo Bamiduro of Max.ng and Deji Oduntan of Gokada, Akinwunmi Ambode led administration has banned the movement of all 100 cc motorbikes which are mainly driven by the regular “Okada” riders, hence giving room for them to scale with their 200 cc motorbikes. So, asides from getting you quickly to my desired destination, these guys also ensure that you don’t go home with a new set of rashes and infections anytime you use their helmet. That makes you more comfortable to get the next ride and beat traffic with class, wearing a fine green helmet.

Well, the jury is still out if they would be successful but trust me, the demand far outstrips the supply. If this can remain for the next 5 years, then we’ll all have to trust the “Invisible” to do its thing and wipe out all the Okadas from the street of Lagos

Now back to the Yellow Cabs. They have virtually disappeared from Lekki, Ikoyi, Victoria Island, and Ikeja areas, and I bet you, in 5 years, they could be 100% gone. Why? Because they would never be cheap enough to become a replacement for buses and never convenient enough to match Uber and Bolt.

That’s checkmate for Baba, he had better start thinking of how best he could make money off his car. Well, maybe he’ll run to Ibadan and repaint his vehicle, but I heard Taxify is doing stuff there already.

The Myth Around Literacy and Financial Inclusion

According to EFInA (Enhancing Financial Innovation and Access), Financial Inclusion is “the provision of a broad range of high-quality financial products, such as savings, credit, insurance, payments, and pensions, which are relevant, appropriate and affordable for the entire adult population, especially the low-income segment” (EFInA, n.d., p1). It requires that financial services (bank accounts, credit, insurance, remunerative savings, and payments and remittance systems) be available and accessible to the underbanked and unbanked.

The Global Findex database showed that as of 2017, there were about 1.7 billion unbanked adults worldwide (Asli et al., 2017). The database also revealed that nearly 50% of these people lived in Bangladesh, China, India, Indonesia, Mexico, Nigeria, and Pakistan (Asli, et al., 2017) as shown in figure 1 below.

Figure 1: Adults without a bank account in 2017
Source: Global Findex database
Note: Data not displayed for economies where the share of adults without an account is 5% or less.
Reproduced under the Creative Commons Attribution license

The map shows that Financial Exclusion is mainly confined to the developing world. Figure 2 below shows that 4% of the world’s unbanked adults live in Nigeria. Between 40–64% of adult Nigerians are excluded from any form of financial services, and ownership of Mobile Money accounts in Nigeria stayed at between 0% and 9% between 2014 and 2017 (Global Findex Database, 2017).

Figure 2: Distribution of Adults without a bank account in 2017
Source: Global Findex database
Reproduced under the Creative Commons Attribution license

A recent report dubbed Nigeria “the poverty capital of the world” (Kazim, 2018) and the World Bank’s 2018 atlas of development goals showed that Nigeria had 86.9 million people living in extreme poverty (The World Bank Group, 2018). Compared to the second runner up, the Democratic Republic of Congo at 60.9 million people, that is saying something. One just can’t help wondering if our leaders care even just a tiny bit that Nigeria has overtaken India (with a population seven times that of Nigeria) as the country with the most significant number of people living below $1.90 a day (World Poverty Clock, 2019). Well, that’s a rant for another day.

Figure 3: Top 10 African countries with extreme poverty (June 2018)
Source: The World Bank Group SDG Atlas 2018
Reproduced under the World Bank’s Open Data Initiative

Financial illiteracy has been blamed for the statistics in Nigeria. It is argued that the main reasons for financial exclusion in Nigeria are poverty and illiteracy (Martin, 2008). As of 2015, the adult (15 years and over) literacy rate for Nigeria was 59.6% (Knoema Database, 2015). It is the popular belief that most financially illiterate Nigerians are the uneducated and the under-educated. Illiteracy has been linked, consciously or unconsciously, to financial illiteracy. This conception is even somewhat backed by research and statistics. But, is this really the case? Is it true that the illiterate shy away from financial instruments and services mainly because they are unable to grasp the basic concepts of finance? Is this really the full picture?

Financial literacy can be defined as the ability to identify, acquire and utilize financial information and services independently. It is demonstrated by the ability to display the basic skills needed to function in the present economy. These basic skills include numeracy, problem-solving and general prose literacy (Robson, 2012), as well as the ability to figure out abstract things. The interesting thing is that the very same basic skills are required to get a grasp of mobile smartphone technology as well. In fact, it can be argued that mobile telephone technologies are much more complex than financial technologies. This, however, hasn’t stopped the developing world from taking up mobile technology. Sub-Saharan Africa is the fastest-growing mobile region in the world (Damian, 2018) with over 400 million mobile subscribers and an overall subscriber penetration rate of 44% (GSMA, 2018). About 250 million of these mobile subscribers own a smartphone (Damian, 2018) and this figure is expected to grow to 690 million by 2025 (GSMA, 2018). And believe me, not all those 690 million smartphone owners will be university graduates. Just ask the Bodaboda driver in Uganda or Bàba Làsìsì who sells beef in Sábó market.

Figure 4: Mobile subscription and penetration in Nigeria and Africa
Source: Jumia Mobile Report: Nigeria 2018

The big question now is: if digital inclusion is exploding across the continent, why then isn’t the same true for financial inclusion? When mobile phones first hit the scene in 1983 with the Motorola DynaTAC 800x, they seemed so advanced and brain-wracking, and they came with fat user manuals. The Motorola DynaTAC 800x cost almost $4,000, was about a foot long, and had a battery life of a half hour. IBM’s Simon was probably the world’s first commercially available smartphone. It cost about $1, 099 and was equipped with a calendar, address book, clock, notepad, PDA, email service, fax service, a QWERTY keyboard, and a touchscreen. In the 26 years since Simon’s debut, smartphones have come a long way. They have become more affordable and pretty easy to use. In order to stay competitive, phone makers have had to “dumb down” the previously complex technologies that run these devices by hiding these technologies behind easy to use interfaces. We went from having to tap like a million times just to get to the figure 9 to QWERTY phone pads with emojis. Even my three-year-old niece can pick out the camera and YouTube icons in a heartbeat and knows to swipe to unlock her mum’s phone. Now, Bàba Làsìsì, who didn’t go beyond primary 6 and who can’t speak a lick of English, has WhatsApp on his phone and can torment all his friends and kids with random broadcast messages that threaten doom and damnation if you don’t forward them to 20 people. He didn’t need a degree or the ability to speak Queen’s English to be able to take selfies on his phone or to send a message to Mama Put to let her know that her cuts of meat are ready. The figure below shows that a larger percentage of Nigerians can carry out several functions on a smartphone than are able to perform financial transactions.

Figure 5: Phone user capability in Nigeria in 2017
Source: FII Nigeria 2017 Wave 5 Report

Why have people taken to mobile technology in a way that has seemed impossible with financial services and products? The truth is that people simply developed functional literacy around mobile phones — how to identify numbers, key in airtime tokens, read balances, etc. It helped that the mobile phone developers made the technology accessible and within reach of everyone, educated or not. The user interfaces on phones are very intuitive and make navigating the otherwise overwhelming world of technology pretty straight forward. It is easier for Bàba Làsìsì to recognize the phonebook icon and call button on his phone than for him to wrap his head around the notion of a revolving line of credit.

What then is this telling us about the so-called illiterate Nigerian? Illiteracy doesn’t necessarily mean that people are dumb or have low IQ. Illiteracy is mostly a function of access, or a lack of it, to formal education. Illiteracy cannot take all the blame for financial illiteracy and financial exclusion. In fact, a survey carried out amongst students from a large metropolitan university in South African revealed that 17% of the respondents were financially illiterate, and 68% moderately financially illiterate (Shambare & Rugimbana, 2012). This shows that education does not necessarily imply financial literacy and that even the educated still struggle with some aspects of their finances.

The world’s poor and un(der)educated don’t need to go to school or have a fancy degree to understand banking. The banks need to borrow a leaf out of Apple and Samsung’s book and present financial services and products in such a way that they can be understood using functional literacy. If undergrads, who are technically considered as literate if they could get to that level of education, don’t understand the concepts of compound interest or have any idea what a credit history is, how then is the man on the streets expected to do that? these banking concepts need to be simplified and made as easy to grasp as tapping an icon on a phone screen. If using an App required having to type in some code in C++, smartphones would have died out eons ago.

The simple truth is this: having a bank account should be as simple as using a mobile phone; having insurance should be as simple as an understanding risk; services should be cheap enough to be within the grasps of the poor — the poor are very sensitive to pricing. In my opinion, banking for the poor should be free, and the banks should figure out how to make money off their larger customer base; understanding how your savings are performing should be as easy as saying “Ok Google.”

The bold will always boss the smart around

Smart but broken and unfulfilled—a common tale. Smart people working for less smart bosses, dreaming of boldness or fleeing for greener pastures. Sometimes being smart just isn’t enough.

Recently, I was enduring a never-ending stream of ranting from one of my mentees (why don’t I ever get paid for this?) about how he gives solid business propositions, but the founder and chief executive of his company doesn’t take his advice. But then when the so call CEO made a mess, my mentee had to do the cleanup.

Of course, my mentee is super smart. First class engineering from a top Nigerian school with IQ as many as floors in the Shanghai Tower. But then, here is a broken man who obviously deserves more and yet isn’t fulfilled. He works in a company that isn’t doing too well because it’s probably poorly managed by the CEO who tells him that if he was that good, he should have started something better.

Does this scene resonate with you? Probably yes.

His story forced me to look around, assess my own life and that of many friends, families, mentees, and random agberos around me. Why do apparently smart people get stalled in poor careers and [some] dumb people become successful? Was it luck? Or business smarts?

Of course, luck plays a role, but statistically, luck should smile on as many smart people as average jones. But empirically, I see most intelligent people working for those less smart. Meanwhile, you would expect the most successful people to be smart since they can use their intelligence to exploit opportunities more but alas, probably around me, this ain’t the case.

Sometimes we talk about hard work. Yes, working hard pays and working smarter pays better. But of what benefit is that if you are working smartly for your dumb bosses and you don’t get any of the upsides and only all the downsides? Most of the hardest working smart people I know work for less-smart bosses, and they rant about it so much my ears bleed. I need to see an ENT.

One thing that seems to be consistent with many founders is that they are bold. Successful founders come in all intellectual shapes and sizes and in various forms of dedication to the hours. But what you won’t take from them is their ability to charge headlong into whatever they believe. They are bold enough to make the leap, not sometimes of faith but many times out of the sheer ballsiness of it. The bold veer towards the edge of insanity to the right, conmanship to the left, inability to access limits to the top, and sheer audacity to the bottom.

I have seen guys walk up and promise delivery of certain products and services without a shred of where and how they would do it, sign the contract and then scamper around to deliver. Sometimes they fail, but when they succeed, maga pays!

And what do the bold do? They employ the smart “you” and “me” to make their dreams come through.

We ain’t all born bold – either because we lost our balls somewhere or we never even came with them. Therefore, we compensate by reading, become thought leaders (whatever that means), get multiple degrees and useless certifications. And when things get really awry, we skip town like Andrew to the US as illegal aliens or to Canada to freeze dry our brains in the name of greener (and extremely cold) pastures.

By the way, it’s not a crime not to be bold; if you don’t have it, you can’t do anything about it. Or maybe you can. I once heard that pretending to be brave and being bold are the same.

But to my many friends and mentees, if you think you are smarter than your boss, just suck it up and spare me the rant. Either you grow your cojones or zip your lips.