Tinubu’s student loan plan is great. But there is a better way to do it.

The Federal Government of Nigeria recently signed the Student Loans (Access to Higher Education Act, 2023 into law. This is a big step in the right direction of providing affordable credit for all Nigerians. Nigeria can’t grow without credit – that’s a fact. 

Only a little over 1% of Nigerians are successfully enrolled in a higher education institution and we can’t pretend not to know that the major barrier to accessing higher education for the majority of Nigerians is simply that they can’t afford it. What the Government has done now is to provide a solution to significantly lower that barrier for indigent Nigerians and empower their future through education, to be more productive members of the society. What’s more? These student loans are interest-free; at least for now. 

This is definitely commendable. 

However, with the way the student loan scheme is currently set up, it might just be destined for disaster. The strict criteria and paperwork required are quite unrealistic for the less privileged students these loans are targeted at. For instance, to qualify for the loan, applicants need to prove that their household income is less than N500,000 per annum or N47,000 per month. This means bank statements and maybe even tax clearance certificates. Needless to say, this poses a problem for low income households who mostly work low paying blue collar jobs or engage in petty trading and remain outside the formal financial sector.

In addition to this, applicants are required to provide at least two guarantors from a limited list of: a level 12 civil servant, a lawyer with 10 years post-call experience, a judicial officer or a justice of peace. The chances that the poor families run in the same circles with these people are slim to none. Even if these requirements are somehow met, there’s no certainty that the loans will be granted as they are subject to the availability of Government funds. These are some of the concerns with the current student loan plan.

This way will fail. Miserably.

Why is it important to ensure the student loan scheme works?

Student loans will secure the future of Nigeria with talent and allow the economy to grow at a sustainable pace. The impact would be felt within a maximum of four years with the fresh graduates’ entrance into the labor market. The labor market will be set to receive an inflow of better qualified job seekers. There might not be enough jobs right now but there’s equally a shortage of talent in the labor market.

Naturally, a reduction in crime will be expected to follow. Educated students are more likely to get jobs and create value than risk their lives or freedom for crime. Even the rent-seeking activities and the entitlement it breeds amongst our young people will see a decline.

With better education and an accompanying improvement in the standard of living, Nigeria will see a rise in our currently poor human development index (HDI) score.

An uneducated Nigeria in 10 years will be a disaster of epic global level.

Is there a better way this could be done?

This is too good an opportunity to pass up or botch. Here are a few ideas that could be implemented to improve the way the student loans will run:

There should be a student loan financing scheme which students, regardless of their parents’ income, can access as long as they meet the schools’ admission requirements. This way, there is much more focus on the ability and merit of the students rather than their parents’ circumstances. This also means it shouldn’t be limited to the poorest students alone. 

This financing can be processed through the universities. The universities, upon acceptance of a qualified candidate, can apply for financing on their behalf. Of course, the universities must also meet a certain standard that assures financiers that the student will receive a quality education that increases their chances for success upon graduation. In view of this, the financing may be restricted to certain courses for which job opportunities are readily available. This helps to manage the risks associated with repayment down the line.

Additionally, transferring the responsibility of financing the loans to the existing private banks takes care of the “disbursement is subject to the availability of funds” clause. Public-private sector partnership can go a long way in ensuring the success of this initiative.

Involving the banks means students may also have the option of securing their admission first and processing the financing through the banks. The only role the Government might play in this is to back the loans; to guarantee the loans in a sense, so the banks can lend confidently.

Essentially, what this is what this could look like: Student Lagbaja gets admitted into ABC university and informs the university he would like to finance his studies via a student loan. He fills out an application for the student loan at the university and the university submits this request to a bank they would have partnered with for this purpose. The university assures the financier that the student is enrolled in an accredited program for a specific duration and they will receive quality academic instruction. Student Lagbaja’s fees are covered by the bank and that’s it. He can go into the world and succeed. And of course, start repaying the loan when due.

What are the benefits of implementing the student loan plan this way?

Let’s get straight into it: 

The first benefit is that this way, the loans can be allocated with merit at the heart of the requirements. Enforcing a minimum standard of academic excellence to access the student loans also ensures that only the students with the best future prospects benefit.

The need for guarantors becomes irrelevant  and this removes the classist implications of the current requirements of such out -of-reach high-ranking officials as guarantors.

Another benefit of this approach is that students can take responsibility for this process without involving their parents, who may be unable to help because they don’t have the resources or an understanding of what’s required of them.

Finally, a more efficient loan distribution network can be established through the banks. This removes the possibility of the process being held back by Government inefficiency, bureaucratic red tape and corruption.

What’s the assurance that this approach would work better?

It’s quite simple really. Banks are more effective with lending and loan recovery. We can’t forget that the Government already tried student loans in the 1970s and had to abandon the efforts when they couldn’t hold people accountable when it came to repayment.

Universities would also be forced to improve their offerings and facilities to be able to onboard more students who can attend on loan.

The final question to answer after considering all these is perhaps the question of how the Government will ensure the loans are cheap? Interest-free loans start and end with the Government. Incentives such as tax write backs would work quite well here to make lending attractive to the financiers and keep the loans at maybe even single digit interest rates.

I’ll give the current student loan plan an A for effort, but the follow-through is in danger if they decide to go ahead without making adjustments. At a time like this, let’s hope the Government hears the people and acts accordingly.

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

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!

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!

I don’t need my eyes anymore.

Last week, I finally dragged myself to check my eyes out and it was an interesting experience of doubting if I may not need those pairs anymore.

You see, my gazing globes have been dimming for a while. It got so bad I was worried I could mistakenly stroll into someone else’s apartment and get myself some slaps. It has been almost 11 years since I got my first pair but unfortunately, because I use the laptop or PC a lot, I tend not to use them.

I promptly got them lost.

So I tried to use contacts, but sticking those stuff into my eyes was an exercise in self flagellation. And even when I managed to stick them on with pepper in my eyes, I still never saw things properly.

I simply resigned to fate. Hoping to outlive the dimness.

Back to getting new glasses. The doctor was pretty nice and pretty as well. She showed me a large scale model of human eyes and ran me through the different parts (or what would you call them?).

She pointed out that the eyes shoot over 10 bits per second through the optic nerves. But as we get older, or with some unfortunate souls with Glaucoma, the nerves start getting on their own nerves – struggling to keep up.

It struck me, if we could do ear implants or change the hips for the elderly, what if we could do something that shows light and vision directly to the optic nerves, bypassing the eyes?

Does that mean we won’t need eyes?

What if those cameras are so good – 8k vision. 20/20. Amazing shit!

What if we could overlay it with web3 🤣🤣 and some few porn?

What if we could send movies directly to it?

What if it could see in 360 so I could see what my annoying kids are doing without me being their

What if the signals could come from my house cameras when I’m not home

Or how would it be getting signals to my brain with a drone?

Or as a scientist, I’m fed by signals from a microscope.

Do I still need eyes?

Making GSI available to every lender would be the CBN’s smartest decision

The biggest mistake CBN has made, despite its commendable and spirited efforts to get credit into the hands of every Nigerian, was to lock out non-CBN licensed lenders from accessing the global standing instruction (GSI) to recover loans.

GSI is one of the most powerful and currently impotent tools ever created by CBN to support the credit industry.

Here it is; no country can grow without credit. Credit grew the leading global economies. For instance, when China set out to transform its economy, introducing credit to stimulate the manufacturing and tech industries was one of the most brilliant things they did. Funding their export was probably the smartest thing ever.  

The reality is that Nigeria and other underdeveloped countries are doing poorly because there is no credit, and there is a massive credit gap, even at the consumer and SME levels.

If there’s such a massive credit gap lenders can make money from, why aren’t traditional and digital lenders tripping over themselves to avail credit to the over 100m adults? The simple answer is that Nigerians won’t pay back, and there is nothing any lender can do about it. You can jump, shout, scream, etc., but nothing will happen.

Nobody needed to tell lenders to go super risk averse, which has led to stunted economic growth.

It means a young mother can’t quickly pay school fees, forever conscripting her kids to a cycle of poverty powered by illiteracy. It means the young man with a medical emergency can’t get the treatment he needs, cutting short a life of fulfillment and glory. It also means SMEs that needed short-term finance never reached them; all the value they could have created was never realized.

Then came along the CBN with the GSI to address this problem. But so far, D- in scoring.

How does the GSI work?

The GSI is a CBN-led initiative created to help banks and other financial organizations recover unpaid loans from persistent debtors, but only as a last resort. The core of the GSI proposition is one of the smartest things the CBN and banks have ever pulled off. 

Despite having the means to repay their debt, we can’t ignore the reality that many borrowers refuse to do so and choose to evade their obligations. GSI allows a lender (a bank) to request for a borrower’s accounts in other banks to be debited when the borrower has defaulted, but the lender suspects that the borrower has funds elsewhere. 

It requires that all bank accounts be linked to the borrower’s bank verification number (BVN). The borrower issues a mandate during the loan application process that authorizes the bank to activate the GSI in the case of default. This mandate is valid for as long as the loan remains unpaid, so the banks can keep debiting the defaulting borrower until their loan obligation is fully met. 

Given this tool’s power to protect borrowers and abuse, there are strong penalties for misusing the GSI.

Why hasn’t GSI fixed the problem?

Would introducing the GSI would have been the secret ingredient to make credit blow in Nigeria, finally? Nah. Banks are too shy to use this for reasons I’m not ready to air here. Besides, bankers are not used to consumer loans, so they don’t care.

The small credit Nigeria has is driven by money lenders and other digital initiatives. 99% of them are outside of CBN’s purview. Of course, getting licensed by the CBN is so hard that most people with common sense won’t even attempt it. It’s harder than getting a seat to go to Mars. Hello Elon?

So we’re at an impasse.

But let’s take a step back. CBN should be more interested in the growth of loans and the economy, irrespective of who gives the loan.

Here’s what the CBN can do

The GSI is too impressive a creation to let it go to waste. There are a few things CBN can do to increase its effectiveness exponentially. 

Opening up the GSI to everyone, whether licensed by CBN or not, would be a big step in the right direction. If possible, it could even be opened up to individual lenders. 

Before you scream “abuse by lenders”; the penalties for misusing the GSI offer protection to borrowers who are targeted unjustly.

An immediate benefit is that to use the GSI, loans have to be registered on the Credit Risk Management System (CRMS) when a loan is granted. The CRMS is a central database that contains consolidated credit information on borrowers and their debt obligations across banks and other financial institutions. It’s almost a Credit Bureau. The CBN mandates financial institutions to enter all outstanding debts with a minimum value of ₦1 million and update the status of these debts every month. Before extending credit facilities to any borrower, the financial institution must also conduct a status inquiry on the borrower’s existing debt obligations in other financial institutions via the CRMS to ensure they can repay and have not abandoned their obligations elsewhere.

Additionally, CBN could make a few more adjustments that help everyone. They could allow GSI as a primary payment method; there’s no need to wait until the loan defaults. CBN could also charge a token for lenders to pay when they use the service since it creates value for everyone on the chain.

CBN has all to gain and nothing to lose. They get to see all the loans via the CRMS. That data helps the CBN, regulators, and other stakeholders make better-informed macro decisions and strategies. This way, the CBN  helps enforce consequences. Nigerians who choose not to pay back loans do so because there is little to no enforceable consequence for their harmful behavior. A loss reduction for lenders will follow; this will also crash the interest rate since the risk premium will also reduce. All these will make for a healthier credit market, hopefully stimulating economic growth. This is something I’d like to believe the CBN can get behind. 

However, this may also backfire: if too much cash is suddenly available, it could lead to severe inflation.

Considering how much there is to gain from these adjustments, it makes sense for CBN to pursue this line of action, and it’s ultimately beneficial to everyone except those who don’t want to repay their loans. And why should we decide based on what’s good for the bad guys anyway?