Credit bureaus are holding back digital lending in Nigeria

I was at a recent event organized for alternative lenders, mostly digital lenders serving individuals and SMEs. The engagements were eye-opening even though I was already conversant with most of the issues raised.

Nevertheless, one of the nagging problems kept nagging me after I left that day.

Everyone was complaining about how difficult it was to get access to credit bureau data. Yes, they exist in Nigeria, and about 3 of them (FirstCentral, CRC, and CreditRegistry) have been licensed for operations by the Central Bank of Nigeria. They even have an association, Credit Bureau Association of Nigeria (proper parapo).

I wouldn’t jump the gun to blame the credit bureaus, but the complaints that kept coming from different actors (banks, MFBs, individuals, etc.) were so many they cannot be without some attributions. There ain’t no smoke without fire.

Here are some of the critical issues that lenders raised.

The cost charged per record by credit bureau is so high as to make it useless except for the high ticket transactions. Meanwhile, digital lenders lend from the low thousands, and when you aren’t giving credit to everyone you check, the cost becomes a runaway train.

On the flip side, credit bureaus get this data from banks and lenders for free then turn around and sell at an exhorbitant price per check. This doesn’t make sense to me or anyone else for that matter.

If digital retail lending will ever explode in Nigeria, the cost of checking credit bureaus has to be so low that it is marginal. Probably in the region of N20 to N50 per call. Do that for 10 million calls a month, and you have a N6B business a year.

Without APIs, there is no credit bureau intermediation in digital lending. APIs must be simple to integrate with, extremely stable, and always available. In a modern digital finance world, APIs should take a few seconds and not days to apply for. There should be a sandbox to test without having to contact anyone.

The APIs currently provided by credit bureaus are so poorly implemented – they are buggy, slow, and takes forever to integrate. You can imagine these credit bureau struggling with modern technology. It is interesting to note that none of the credit bureaus has any reference to APIs on its website; so if you want to see developer documentation, you are on your own!

Information should be simple. In the US and other countries, a combination of names and other demographic info are used. In Nigeria, there should be a standard use for BVN. It is unambiguous; it’s simple, it’s fast

Reduced cost for contributors
Credit bureau should give credit of say five free checks for every record of the contribution made by lenders. It offers incentives for lenders to contribute information. The more they update, the cheaper their operations are. It’s a win-win for everyone.

Partnership with fintechs
It’s possible that these credit bureaus have dinosaur backends and find it difficult to serve the fast-paced digital lending world. They could partner with fintechs (hungry for revenue) to build smart API front ends and developer portals which alternative and digital lenders can connect with. Revenue share is a way to make everyone happy. Any takers?

What happens when these are done
Lenders get to trust the system, and it becomes self-reinforcing. The better the system is, the higher the chances of blocking bad actors. When bad actors are getting barred, anyone (like my cousins) with a propensity to go rogue become serious because they can see consequences. Then default rates go down which make interest rates to go down as well. More credit flows. Maybe Nigeria can be great again.

Fun facts
Of the three credit bureaus in Nigeria, two are ladies. Amazing Amazons

Finding data in Africa shouldn’t be a problem. Let’s solve it

Data is the fuel of decision making, anywhere and everywhere; and Africa is not excluded. Regrettably, getting simple information to make intelligent decisions in Africa is so hard you are better off just reading the stars. No wonder most African businesses are based on “divine inspirations.”

The African economy is vast with different sectoral opportunities. Yet, the lord helps you finding accessible information to help you bring your nice ideas to the market. In the end, unfortunately, most of us depend on foreign data or information to make our business decisions. Some of these data are so old the web pages have gray hairs.

Many of my friends (I have so many, want some?) complain about the paucity of data and love to compare how easy it is to get data about other countries. But hey, angels didn’t create the data for them, they did. What we lack is a deliberate attempt to do research, surface insights and share data with the world, for free.

The exciting thing is, if you push data out, you end up becoming a reference or an authority even if some or all of what you published is rubbish. Remember, never believe everything you see on the internet.

The irony is that some data exist but in forms that are not discoverable. For example, I was recently looking for a list of approved mobile money operators in Nigeria. While I know it must be somewhere, hiding and eating popcorn on the CBN website, it wasn’t coming up on Google search.

And when you see some of these data, they are also not easy to understand forms. Data from National Bureau of Statistics (a rich source of good quality data) come in formats so ugly it wouldn’t find a girlfriend if it were a man.

My specialties have always been technology, banking, and payments, so, over the next few weeks, time permitting, I will be prettifying some of the easy information about Nigerian payments space which can then be found by anyone sleuthing around and hopefully Google and Bing can easily surface them as well.

Mobile Money in Nigeria: Operators, Opportunities and Trends

Recently I started seeing a spike in the number of inquiries made by friends, fintechs, and random other people about Mobile Money in Nigeria. And it’s not because they are suddenly having altruistic ideas for financial inclusion. Something must be cooking!

Let’s get the basics right

Mobile money is a form of banking where your account number is your mobile number. It’s as simple as that. Any other definition is an oversabi.

After the successful debut of mPesa in Kenya, many countries tried to launch their copycat mobile money system.

Unfortunately, it has been a mostly miserable failure. Some stats said less than 3% of all mobile money implementation has been successful. In Nigeria, the number is worse: 0%.

At the start of the mobile money madness, CBN gave out 23 licenses, 10 of which were by banks.

After a flurry of activities, things chilled. Banks subsequently developed acute amnesia about their licenses went back to their bread and butter: Commercial Banking.

Why and how mobile money failed will always be contentious. I have written about it, others have different opinions. The one thing we ain’t arguing about though is the fact that mobile money failed to hit the sweet spot.

New interests in Mobile Money

The emergence of fintechs has thrown open new possibilities of what can be done with moribund mobile money licenses. Most fintechs within the payment space are having a lorry load of challenges connecting to banks.

For example, a common request would be funding of payment transactions from bank accounts for which banks haven’t provided any simple APIs to work with. Those doing savings and personal financial management want to keep money in a legal way and also allow topping off investments from bank accounts. That itself is another problem.

Just like the way banks repurposed USSD codes meant for mobile money in 2014, fintechs are circling around banks to see how mobile money can be repurposed for better things.


Now, the list

Getting the actual list of licensed mobile money operators in Nigeria should be simple, right? Nope! You can’t even find it on CBN website if you search for it but here’s the direct link.

So, I put together the list of those I know to aid anyone.

*909# Mobile MoneyStanbic IBTC Plc
Access mobile moneyAccess Bank Plc
TinggCellulant Limited
Diamond mobileDiamond Bank Plc
EazyMoneyZenith Bank
Ecobank Mobile MoneyEcobank
FETSFunds and Electronics Transfer Solution Limited
Fidelity Mobile MoneyFidelity Bank Plc
FirstMonieFirst Bank Nigeria Plc
Fortis Mobile MoneyFortis MFB
GTMobileMoneyGTBank Plc
*Part of Vanso. Bought over by Interswitch in 2016
Interswitch Limited (formerly mKudi, a subsidiary of Vanso)
*Not operational. Site redirects to Fiserv
NowNowContec Global Infotech Limited
PagaPagaTech Limited
PayAttitudeUnified Payments Services Limited
*Bought by Opera from Telnet in 2017
Opera Software
PocketMonieTranzact Plc
Eartholeum Networks Limited
ReadyCashParkway Projects Limited
Sterling mobile moneySterling Bank Plc
Teasy MobileTeasy Mobile Limited
*Shut down. License allegedly returned to CBN
Afripay Limited/United Bank for Africa Plc
Virtual Terminal NetworkVTNetwork Limited
*Senegalese company. Acquired license in 2016
*Zoto app shut down
Hedonmarks Management Services


Other documents

The following are also critical documents for mobile money in Nigeria, especially from the regulatory perspective:

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/ ($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 door post.

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 on 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.