Why Nigerian banks will never lend you a dime

We all go broke at different times, and the natural thing would be to turn to our bankers. After all, we have been putting our meager savings in there for a while; and one good turn deserves another, right? Wrong!

You are probably rolling your eyes now because we all know that Nigerian banks hardly lend to individuals no matter how compelling the case is. Yes, I know a few connected or lucky souls get loans that don’t come from your account going into debit because of SMS alerts. I also know a few banks, such as Access Bank, will readily give you loans under 30 seconds. These are outliers, and 2 trees don’t make a forest. The official numbers paint a grim picture.

According to the National Bureau of Statistics (yes, they keep tabs!), loans to individuals, which averages N88,000, constitutes just 0.7% of all loans while the ones to awon baba alaye of N1B and above is 82% of all credits Nigerian banks have advanced.

We can both see that it would be easier for a polygamous camel, with its harem of fat camel wives with luscious humps, 100 baby camels, and 3 side-chicks camels, to stroll through the eye of a needle than for you and me to walk into a bank and walk out with our loans.

Everyone who’s got least a D in Economics knows that credit is the grease of every economy and the cogs are the individual spenders, while SMEs are the backbone. So why are bankers bent on keeping Nigeria from attaining great heights? I guess this is the reasons why bank CEOs get bashed at every turn for the poor state of the economy. It has become unpardonable as they deliver multi-billion profit year on year.

It seems the bashing, name calling, and mudslinging doesn’t work on the bank CEOs anymore. They just don’t care.To rub salt into injuries, the few times banks want to give you a loan, they demand so much documentation and collateral that people are stumped “if I had this much collateral and documents, I wouldn’t even come for a friggin’ loan!”.

So, let’s go get our pitchforks and deal with these evil bankers! Not so fast; there are at least two sides to every story.

Let’s do a walk back and ask ourselves, why does anyone even set up a bank in the first place? To make tons of cash! Shareholders ain’t Father Christmas. Nobody goes through the pain of setting up a bank for charity.
And the way banks make money is simple. They take money from those who have excess cash or who want to save and lend part of it to those who need money. The gap between the interest they pay the savers and what they charge the borrowers is their profit (after paying off your cousin’s salaries and the cost of the ATM withdrawal you made at another bank’s ATM).

If banks only make money when they lend, why ain’t they lending to me and you yanfu yanfu? Obviously, if the money won’t come back, they can’t lend it because if they can’t pay the savers when they come for their money, kasala go burst.

There are two critical things lenders look out for when thinking of handing over cash to you; ability to pay and willingness to pay.

Ability to pay refers to the capacity of your cash flow to pay back according to the repayment schedule, the probability of your business to grow as to generate enough revenue to pay, etc. This is where complex models are used to check you out. For example, it’s a standard practice that you must not use more than 33% of your monthly salary to pay back loans because irrespective of the sincerity of your heart, anything more could impair your day-to-day ability to pay back. Therefore, when banks ask for your statement of account, payslips, invoices, contracts, blah blah, this is what they want to calculate.

If you ask for much more than a bank think you can pay back, they will reduce it or the bad ones will kick your scrawny ass out of their office.

Willingness to pay back loans is a big deal, and it is so fundamental to credit that if you get this wrong, you are dead. I mean deader than a joint of beef. If the ability to pay back is impaired, a loan can be restructured, and it happens every time. However, when borrowers don’t want to pay back, hell boils over.

Willingness to pay back is a function of a working society and I ain’t sure if Nigeria can be classified as working, per se. In other countries where individuals get easy access to cash, you are in so much trouble if you don’t pay back. In fact, nobody needs to warn you to respect yourself. In places like Dubai, it’s even a criminal offense not to pay back: you skip your loans, you find yourself a lovely prison studio apartment.

Nigeria, being a place where law and order is an illegal alien, banks go around this issue by demanding collateral, things they can sell on Jumia or Balogun market if you don’t pay back. And not only do they request these, they do extensive checks on the documentation to ensure it actually belongs to you and that you haven’t pledged it to another bank. Stories of fake documents used for loans are twelve a kobo.

Crosschecking validity of documents in Nigeria is extra difficult as our governments are not automated. Just try to confirm land titles and vehicle authenticity and you can have an idea of the stress.

Since these processes are painful, long and super annoying, Nigerian banks quickly wised up to save their energy for higher ticket loans. Why spend 2 weeks on documentation for a N100,000 that you only make N2,500 on when you give someone for a month at 30% per annum? It would take precisely the same efforts to document an N1B that you make N2.5M at the same rate.

Of course, loans go bad for small and big borrowers. While we hear of the bigger boys with bad loans, the percentage (count) of smaller loans going bad is higher. Banks can afford to get a Senior Advocate of Nigeria to go after the big boys to get their money back and trust me, lawyers are not cheap and don’t do promos. What is the cost-benefit analysis of sending lawyers after a N75,000 loan when the amount in question isn’t enough to even pay the lawyer for a day’s job?

The good news is that fixing willingness to pay, that is to make it extremely painful and expensive for borrowers to default, can be easily fixed. The bad news is that it takes so many political balls only few would attempt it because it would hurt a lot of politicians. We don’t even need the FGN to do any law, there should just be a regulation between banks, backed by the CBN, that if you don’t pay your bills, you should be banished from the financial system. No need to take you to court or send lawyers after you.

If that happens, expect banks to start lending easily without going through too many documentations. They know you will pay back. Easy credit will allow people to have access to good things (consumer spending) while paying back over months. Mortgages will become available. Builders will build more and cheaper as there is a ready flow of buyers. Suppliers of labor and materials to builders will sell more.

Multiply that for every sector of this damned economy and you can only imagine how we will rule Africa.

For want of a nail the shoe was lost.

For want of a shoe the horse was lost.

For want of a horse the rider was lost.

For want of a rider the message was lost.

For want of a message the battle was lost.

For want of a battle the kingdom was lost.

And all for the want of a horseshoe nail.

Nigerian elites will be losers again, bigly!

While it seems that MTN has an uncanny ability for strolling from a frying pan ($5B fine), into the fire ($8B refund), and then amble into a lava pit ($2B tax arguments), one thing that caught my eyes was the sheer magnitude of the $8b dividend that MTN has remitted to the mothership since 2001.

How many black $billionaires do we even have that MTN alone could have minted 8 of them? As funny as this is, the tragedy is that when the opportunity to build the telecoms business in Nigeria showed up in 2001 the Nigerian big men and smart elites, save a few, looked away and weren’t impressed with the potentials.

Unfortunately, even though it’s now established that there is a lot to be made in telecoms, the barrier to entry has been raised so high that nobody can tap into the market for a reasonable investment anymore. Yes, MTN wants to do an IPO, but the cream of the business has always been sucked away by the visionary South African and other foreign investors.

We could talk about big names like Dangote, Otedola, and others, but their wealth is mostly paper money which is why their Forbes rankings always go in the other direction of Naira to Dollar exchange rate. $8B sitting in your account, chilling and sipping champagne, will still be $8B unless Aso Rock rats eat them.

Nigerian elites are losers.

But there is something to life; history has a way of repeating itself.

Without a doubt, everyone agrees that Nigeria is a frontier economy – where things are challenging, but there are growth potentials. Nevertheless, we are seeing the proliferation of world-class technology companies rising to meet our challenges.

But who is funding them? Nigerians? Fat chance!

Recently, a number of local players, regular everyday guys like you, have raised significant capital to fund their next stage of growth: Kwikcash/Mines.io ($13m), Flutterwave ($10m), Cellulant ($47m), Venture Garden Group ($20m), Paystack ($8m), Andela ($40m), Tizeti ($3m) etc. The majority of these funds came from international Venture Capitals (VCs).

And for the few local VCs that participated, most of their LPs (the investors who put money in funds) are foreigners.

All things being equal, we expect these companies to succeed, and when the time comes for dividends and exits (when VCs sell shares to give the money back to their LPs), the gains will take a flight and go abroad.

Raising local funds is like raising hell, for yourself

The founders raising funds from foreign VCs didn’t just jump on the plane to hunt for dollars in Silicon Valley but started talking to local money bags, but it didn’t end well. I was privileged to have mentored a few startups, and their tales of local fundraising is at best, amusing.

Despite the dubious claims of global experience, many Nigerian elites don’t understand venture capitalism. In pitching to them, they waste your time; ask for everything in return for a pittance; many want to treat you as an employee. They demand unreasonable control; and force you to employ their relatives. The business connections and introductions they promise never materialized. When they sit on your boards, their contributions are asinine. As advisors, you are better off talking to a doorpost.

Founders quickly grew wise and stopped pitching local money bags and executives. The same projections that our rich men made fun of are the ones that Silicon Valley lapped up. Even when startups fail, the VCs know failures are an integral part of success. In fact, some VCs won’t fund you if you have never failed before.

It got so bad that many local startups won’t even allow local investors to participate in their rounds. It can be that bad!

Local players with African aspirations

It would be disingenuous to tar everyone with the same brush, even if the brush is as wide as Lake Chad. A few forward thinkers have put a portion of their wealth aside to fund startups such as Itanna, Trium (disclosure: I work here), Quantum Capital, Pave, etc. But the total smart capital committed is insignificant to the potentials within the country.

Maybe a few won’t be losers after all.

We shall serve our dollar overlords

What scares me though and keeps me up at night is that we could enter into a generation of technology colonialism. A situation where foreigners bring in a few hundred million dollars, invest in our fintechs and other sectors. Their investee companies then use Nigerian workers, Nigerian business ideas and then take all the benefits, in multiples, back to their country.

When the time comes, our big boys would have become irrelevant; their oil companies, banks, and businesses way smaller and less important than the new technological overlords.

Whatsapp banking is bad news

A few weeks ago, Access Bank, First Bank, UBA, and ABSA in South Africa came to the market to inform everyone they would be rolling out Whatsapp banking in a few weeks. The announcements came with so much fanfare I thought a new king of Africa was being announced.

Access Bank’s body dey catch. They launched their Whatsapp banking yesterday to consternation of the other banks who weren’t ready.
Did it resonate with me? Absolutely yes!

Whatsapp is so prevalent in Africa you could call it SMS of the not-so-poor people. A recent survey in South Africa showed that 100% of everyone who has a smartphone has Whatsapp installed even though the average person has just five apps installed. I assume, pretentiously, that the same metrics is valid for Nigeria. Correct me if I’m wrong.

Ask yourself (you have a smartphone if you are reading this, if you don’t then I owe you free lunch), when last did a friend send you an SMS?
Instead, SMS has been relegated to transaction messages from banks, updates from billers, telcos, and a few ATM spammers. If you got a personal message as an SMS, it’s probably from some of those losers who call themselves Apple fanbois; they don’t know that Whatsapp eats iMessage for dinner every day.

Whatsapp banking makes solid sense in different ways.

One, it’s not spamming. I don’t get a message from my bank unless I register for it in the first instance. Nigerian banks can spam for West Africa!
Two, it’s an interactive two-way street, or that’s the way Facebook envisions it as I am not so sure that Nigerian banks are ready to listen to the diatribes of we angry customers as we spew every day like a volcanic lava.

Three, it cannot be spoofed. Or let me put it this way, it cannot be hijacked easily. Even if your SIM is cloned, as long as you have internet, you continue to receive messages on your phone, and if you are smart enough to protect it with a PIN, even if your SIM gets hijacked by Evans the Kidnapper, your PIN would be required to get your messages to your phone.

Four, SMS is notoriously unsafe. It’s in the plain on Telco servers such that even the blindest of them all is reading your SMS messages and cramming your USSD banking PIN now.

So Whatsapp is absolutely fantastic.

Maybe not so fast.

If Whatsapp messaging catches on with the bankers, who will be sending Whatsapp messages for free, then the bulk SMS providers like Infobip, IP Integrated and Clickatell are in serious trouble. Rumor has it that they collectively send about 500 million messages a month between them. But then Clickatell may not cry like others. They are the API back-ends for the banks that have signified their intention to get to the market.

Of course, the telcos are in trouble as well but they at have an upside: increasing data usage. MTN’s data use grew about 68% since last year, and they recently ponied up N200B for data expansion some few weeks ago.

Smart lenders like Paylater, Kwikcash, and QuickCheck, who read your text messages (oh my, those salacious messages!!) to have an insight into your willingness to payback, will have an incredible nasty time scaling to Whatsapp as SMS boxes will dry up. But I guess, they can take care of themselves.
While bank customers clap, and the lenders and VAS providers bawl, armchair pundits, like me, can only speculate about the next bank on the Whatsapp banking rat race.

Three reasons why current accounts are for dinosaurs

When I started working as a new hire, one of the things shoved down my long throat was my salary account, which was a current account. I didn’t know my left from my right as the account was free to use so all the complaints of charges that customers were screaming about were like cold water pouring off the back of a randy drake.

I wasn’t alone; as having a current account is a right of passage for anyone starting work at structured (more formal) organizations. You go through finding references, and they dashed you a chequebook, with which you can always make withdrawals of the pittance you are paid.

But as banking evolved in Nigeria and everyone got on the electronic channels, things changed dramatically to a point where it is now gross foolishness to keep your current account.

Going back to what bank account products were meant to be, current accounts, called checking account in the US, are designed to be used for everyday transactions, allow you to give cheques to friends, billers, and loan sharks, to draw money from your accounts, etc. Because of this, the stringent requirements needed to have a current account include getting two other current account holders to provide references for you; a letter from your employer to show that you earn something, no matter how little. For these services, Nigerian banks charge a commission on turnover (N5 per N1,000), which recently transformed itself into an account maintenance charge (N1 per N1,000). Outside Nigeria, banks charge a flat monthly fee to run your current account which could be waived if you maintain a minimum amount.

Savings accounts, on the other hand, were designed for savings. You need minimal documentation for this (identification), and you earn interests on whatever amount you leave hanging around each month. However, if you withdraw from it too often, you don’t get to receive any interest.

Nigerian banks being alaseju, are very good at collecting their charges. In fairness to banks, these charges are fair, but because banks do a poor job of communicating with customers, the charges look spurious and annoying.
Throw in the trouble of getting two random uncles to be your reference, inability to put together all the documents the banks want, and the annoyance of seeing your money disappear month after month, Nigerians made a nice detour from current accounts. The numbers speak loudly: of the 111M accounts, 24M are current while 83M are savings account.

The savings account has been so bastardized but is now serendipitously solving the problems of everyday Nigeria. You don’t need to wonder while wandering to know that current accounts’ usefulness has gone with the winds. A regular savings account come with a card for ATM, POS, and web transactions. Savings accounts are also strapped with mobile, internet, and USSD banking, you can do interbank transfers, pay your bills, and buy airtime.

So, what do you lose? You can’t give cheques, but nobody gives two flying horse legs about cheques anymore. In fact, the CBN itself has waged war against cheques up to a level that its use is restricted to those with antediluvian attitude and my friends who borrow money from consumer credit companies (you know yourselves!). You also can’t walk into LG and Samsung to take on new TVs hoping to pay small small. For that inconvenience, you are free from many charges including but not limited to a 0.1% account maintenance fee, search fee, stamp duty fee of N50 for every deposit over N1,000.

So for all these pain of current accounts, only a masochist would enjoy having one. And the three reasons? Read from the top again :-).

A rant about the evolution of telephony in Nigeria

A long time ago, when chicken had teeth, the whole of Nigeria (not half of it, the whole!) had 400,000 lines for 80 million people. Of course, only the rich had these phones. Everyone went to the business center to make calls and do Yahoo faxes. Or you climb a tree and shout yourself hoarse if you want to talk to someone near.

Then NITEL, the government parastatal, decided to do analog mobile telephones. It cost three arms and ten legs. Only the thieves, the politicians, and cocaine pushers got them. The first time I held an analog Motorola Startac in my hand, I felt like God’s nephew. It was a status symbol for the successful Ibo traders (naught-nine-naught).

Then, the private Telcos brought in their technology. Notwithstanding, Multilink, Intercellular, Starcomms, and others felt telephone was for the rich boys. They cost N150,000 to get one. A few senior executives got these lines to call their girlfriends on the phone (that was before we started calling them side-chicks). The rest of Nigerians were left to shout at each other just to talk.
At this time, just before Abacha bit the apple or kicked the bucket, he handed over GSM licenses to everyone except my uncle. Both Celia Motophone and Mr. Adenuga setup 30,000-line exchanges. Apparently, the target wasn’t the common man. The phone services never saw the light of the day.

Sometimes just after my sister was cleaning the plates used for the 2001 New Year party, the President of the Federal Republic of Nigeria got upset, instructed the technocrat leading the NCC, the nation’s watchdog guarding the national electromagnetic asset, to auction some frequencies for $285M a pop. MTN and Econet Wireless raised Benjamins from everyone and got themselves some licenses. Hey, something is gonna happen?

In August 2001, MTN and Econet Wireless launched their brand new but mightily creaky networks. SIM cards were sold for N20,000 a pop, and you can call a few friends for N50 per minute. Again, only the rich could buy SIMs and phones. Wait, won’t these guys learn some lessons from history?

Luckily, guys at MTN and Econet leased some wisdom and crashed the cost of getting a new SIM. MTN did BOGOF (not what you think it is) and it was buddie buddie time at Econet. At this incredible time, everyone had a phone, but calling was still an unforgivable N50 per minute. Someone discovered flashing, and madness ensues.

Everyone had a phone, the poor people flash the rich to call them back, just like “collect call” in the US. If you don’t know what flashing means, ask your uncle. If you have any, ask your “uncle.”

The whole country begged, rolled on the ground, threatened, even sacrificed goats so that MTN and Econet could charge per second, but they said it was technically impossible; God didn’t like it; heaven will crash; blah; blah and damn blah. After a while, they lost all excuses but N50 per minute calls remained.

Somewhere on the horizon, sometimes in August 2003, a green bull galloped into the Nigerian China shop, and hell was let loose. Glo brought per second call billing and within a few days, MTN and Econet (they changed names more times than I have changed jobs) came out with per second billing as well.
Many Nigerians, including yours sincerely, swore for MTN and Econet (or was it Vmobile?).

For the first time, Nigerians found their voices, and since then, with calls getting cheaper by the day, nobody has had peace. Flashing died a withering slow and agonizing death. Even your Maiguards will call you and stay on the phone for 45 minutes at a time.

Now, it seems the end of the beginning has passed.

You see, the Internet has become so cheap and Whatsapp so pervasive that only psychopaths send SMS and nobody calls again. Everything is now done on Whatsapp. ARPU, the means by which finance guys in telecoms skewer themselves, have been steadily declining over the past five years.

17 years is a short time for what the country has done for telephony. I doff my hat. But will the same happen for power, payments, and financial inclusion?