The Absence of Legal Infrastructure is the Bane of Consumer Lending

Adedeji Olowe, CEO of Trium Networks Limited
Babatunde Makanjuola, Coronation Merchant Bank Limited


If you ask the average Nigerian about his/her understanding of infrastructure, you are likely to get a response that depicts something tangible, e.g., airports, railways, roads, etc. This is not wrong; however, it is not exhaustive.

By definition, Infrastructure is the underlying systems and services, such as transport and power supplies, that a country or organization uses to work effectively. In short, infrastructure is the bedrock of any economy – it is just as hard to imagine traveling from Lagos to London without an airport (physical infrastructure), as it is to imagine civilization without laws and regulation (intangible infrastructure).

Financial services play a key role in economic growth: one cannot emphasize how important it is that scarce resources are channeled to its most efficient use, or the role of banking plays in economic prosperity. But what is the current state of Nigerian banks? Banks stay profitable mostly by fees and commissions, and income from investment securities rather than their core business, lending.

Persistent negative loan growth, and a corporate-concentrated loan book, for most banks, suggests that credit needed for economic expansion is not being extended to you and me, the everyday person, seeking capital to foster business and entrepreneurship. Figure 1 shows that credit (when considered as a percentage of GDP) to the private sector in recent times has been meager.

Figure 1: Credit to the Private Sector as a % of GDP

Source: CBN, Bloomberg

To some extent, it is hard to blame the banks; only just recovering from an industry plagued by poor asset quality and non-performing loans, most bankers play safe by extending risk-free investments to the Federal Government at high double-digits interest rates while they shy away from creating risk-assets. You have to ponder: what can be done to address this? First, let’s consider the opportunities that lie in the Nigerian retail loan market.


How big can retail lending be?

In the United States of America, one of the world’s most advanced economies, the retail market is estimated US$1.49 trillion in a US$19.3tn economy. Using the same inference for Nigeria, with an economy a fifth of the US (US$375bn), we can extrapolate about US$28bn or approximately N10.2tn. This is a quick and rough estimate. Of course, some form of country discount will have to be applied to this number as most Nigerians have no access to banking and financial services, see Figure 2. However, it shows the potential of Nigeria’s retail loan market if things can be done right.

Figure 2: % of banked adults around the world – Nigeria lagging on financial inclusion

Source: World Bank Database

As I said earlier, lenders hedge credit risks by lending to few big reputable corporates and invest the rest of their liquidity in risk-free fixed income instruments. This means most individual borrowers are denied credit.

If you have ever tried to secure a loan from your bank for business, then you probably know that most, if not all banks, require an arm, a leg and one of your kidneys before they are comfortable giving a line of credit to individuals. But this should not be the case in an ideal, business-friendly, and growing economy.

In a nutshell, banks are generally averse to lending to individuals and SMEs without an established reputation. The reason is simple: just the way the cost of power (fueling and maintain a generator) is a massive headache to most businesses, the cost of due diligence, credit assessment, and setting up legal checks for unsecured lending make unrealistically expensive to loan seekers – this is the bane of consumer lending.

The government has failed to change this paradigm in many ways. On the one hand, the FGN crowds out private sector credit by persistently offering juices yields to local financial institutions. Secondly, and more importantly, our government has failed to set up the infrastructure needed to facilitate unsecured lending; especially a legal system to protect lenders and borrowers.


How can this be done?

It would be helpful for the CBN and the banks, work closely with legal professionals, to take responsibility of fixing this challenge by developing a framework for retail, SME lending and loan recovery within the scope of their existing regulatory capabilities.

I dare say that our problems have already been partially solved with the introduction of the Bank Verification Number (BVN). The BVN is a unique identifier that links an individual’s bank accounts together and stores your personal and biometric data; think of it like a Social Security Number used in the US, but not yet as elaborate. It is an elegant and modern identity infrastructure that has leapfrogged the Nigerian banking from rudimentary to top-class in just a few years.

This framework should serve as the legal backbone for lending, such that there is appropriate recompense for anyone who does not pay his loans as at when due.

Imagine that whenever a customer takes a loan and does not pay back as at when due, the lender is required to contact the customer and specify a grace period, perhaps three months, within which the borrower is to fulfill their outstanding obligation else they would be reported to a national registry of defaulters. Of course, banks must show evidence of this notice to the registry periodically.

This is expected to prompt the borrower to pay back his outstanding loans before the grace period elapses. If within the grace period the customer pays back, all well and right between the lender and borrower.

However, if the debt extends beyond this period, more aggressive measures will kick in. The bank will push the data to the national registry which will then act on it with an automated warning with details of the consequences should the borrower fail to oblige. Punishment for defaulters will include preventing all of the debtor’s bank accounts from any further debits – this will also apply to guarantors of defaulters.

This will involve more details and a lot of fine tuning – we will also need a quick and reliable credit rating/scoring system – but it presents a possible view of how we can get the banks more comfortable with retail lending.

Furthermore, a lot needs to be done by the CBN and banks to ensure that potential borrowers are well informed about the benefits of taking loans and the consequences should they default. We recommend a campaign through various media platforms/outlets – analog and digital.


How could this impact the economy?

The potential cash injection to the retail and SME sectors will promote entrepreneurship, increase retail consumption which will subsequently drive manufacturing, wholesale, and retail distribution, etc.

There will also be the increased rate at which money changes hands (velocity of money) which ensures improved cash flow for many businesses – this increased value will grow jobs, reduce unemployment and slowly pull many of the populace out of poverty.

We all complain about that lousy road or local travel experience, or the lack of a rail system in a megacity like Lagos – this is valid and genuine issues regarding our infrastructure. But I don’t hear as much noise about how difficult it is to get a loan to start a business. Maybe we aren’t just looking at things right.

Nigerians are a vibrant bunch of people full of ideas and entrepreneurial spirit (look at the fantastic leaps of the entertainment industry), and all that we need is a system that will give the required platform to showcase this to the world.


Contactless cards can revolutionize payments in Nigeria

The ease and speed of a payment method are directly proportional to its adoption. Although payment with cards has been growing at about 100% CAGR over the last three years, all you need to do is stand behind that smug, self-entitled millennial stamping her feet while waiting for a purchase to finish to know that paying with debit cards at POS terminal would never be mainstream for everyday payments.

The UK was at the same junction a few years ago although using your card for payments was significantly faster. Then things changed when banks allowed regular debit and credit cards to be used to tap-in and out on buses, trains, and trams. Contactless transactions exploded. You only need to see contactless payments in action for you to be smitten. You will ask yourself just one question: why have we suffered this long?

When properly configured, contactless payments go through in less than 1 second, just the same time it takes to touch the card to the reader, and that’s it.

How do contactless cards work? Not so simple. On a contactless card, the plastic has a small antenna that allows it to wirelessly transmit payments information from the chip on the card to the card reader. When you touch your card against the reader, they both talk to each other. Contactless can work in both online mode (where transactions are sent to the bank for authorization) and offline mode (where the bank gives some leeway to allow payments to be approved by the chip on the card)

For security reasons, banks, governed by national standards set certain limits. For example, the bank will determine the number of times you can do touch-and-go before you can use your card for online payments (where you have to input your PIN). Also, there is also a maximum amount you can do at a time. You can read about the limits for different countries here.

Despite the benefits of contactless, this is yet to catch on in Nigeria. Nevertheless, this has not stopped by banks from taking the bull by the horn. Over the last three years, United Bank for Africa has been giving out contactless cards by default to all customers. But with no places to use them, it has been an exercise in futility.

The challenges to using contactless in Nigeria are not as many as I previously thought though they are not trivial.

There are no playbooks for contactless payments in Nigeria. In other countries, the regulators always specify the rules that govern payments, including contactless. We have myriad of regulations for payments in Nigeria, but none is looking at how contactless should work

Risk acceptance in Nigeria is also a challenge. Abroad, banks trust that transactions done in offline mode will always be paid by the customers. And when cards are stolen, the banks will refund the customer the amount the thieves have done for offline payments. In Nigeria, banks don’t trust the customers to pay back, and the customers don’t trust their banks to make good of money stolen when contactless cards are lost. An impasse ensures.

There are hardly any shops in which you can use contactless cards. It’s one thing to have a contactless card; it’s another thing to have places you can use them. The 3 million UBA Mastercard cardholders taking their contactless cards around use them as decorations since they are no places to tap and go. This, however, creates a chicken and egg problem. Apart from UBA, no other bank is serious with contactless cards, so the market is small, so this makes other banks not to invest in contactless reader POS. Why buy POS that nobody would use.

Irrespective of the challenges of contactless cards acceptance and issuance, the immense benefits and its ability to transform payments and make cashless real means it makes sense to pursue its usage. And the market is there; in every bank, there are more cardholders than users of USSD and mobile apps.

Product managers can deal with the risk by getting customers to activate their contactless limits. And it could work this way. Cardholders will go to their banks’ ATMs, insert cards and select the options for the number of offline transactions and amount. The bank CBA will put that amount as a lien on their accounts. Each customer will be responsible for his settings, and if the card gets lost, well, it’s like your wallet getting lost with the cash you just got from the ATM. The benefits are apparent; banks reduce their liability while customers can set what they are comfortable with to get the benefits of faster checkouts.

Banks should have a strategic partnership with high-traffic merchants such as tolls and major supermarkets. These would be anchor merchants that can help drive the adoption of the usage. After all, a picture is worth a thousand words – nothing will convince anyone to adopt contactless faster than seeing it in action. And by the way, the merchants also enjoy contactless as they can handle customers more quickly during peak shopping periods.

With those two things in place, the last logical piece of the tripod legs would be a massive campaign to let customers know about contactless. Nigerians are very aspirational so getting a few A-listers and Nollywood stars to be the face of this would quickly turn tap-and-go into a must do for everyone.

When the ease of payment with cards is now better than actual counting of dirty Naira notes to make payments, we should be looking at annual transactions at least ten times more than the 2018 POS payments.

Core Banking Software used by Microfinance Banks (MFB) in Nigeria

This article was inspired by comments on a related post written by one of my industry mentors. (

To put this into perspective, a core banking application (CBA) is to a Microfinance Bank what a foundation is to a building. This means MFBs with a comprehensive, automated and effective CBA guarantees profitably, operational efficiency and organizational/customer success.

While the functionalities of CBAs for MFBs have evolved, there still exists significant areas for improvement concerning cost, user experience, integration options for value-added services and service support.

Having engaged and partnered with several CBAs providers for MFBs, I am sharing brief profiles of the key solution providers and the key features of their solutions:

BankOne CBA has grown since its launched by AppZone in 2011 to be a significant player in the MFB sector today. Designed to achieve end-to-end automation the CBA exposes core services to end customers through multiple alternative channels nationwide including ATMs, POS terminals, Internet, Mobile phones, Commercial Bank Branches, and independent agents.

Sagamy CBA provides MFBs with deposit and loan account management, high volume transaction processing capabilities, remote cash center management, agency banking, seamless inter-branch transactions, automated CBN reporting, along with automation of back-office operations such as fixed assets, HR & payroll, shares, inventory/stock, and general ledger financial accounts management.

EazyBank AX from Datalinks is a multi-currency, multi-branch banking application developed around Microsoft Products namely C#.NET, ASP.NET and SQL Server 2008 with modern day cutting-edge 3-Tier architecture. It is deployed to serve as both Windows and Web platforms.

CuteBanker from DynaTech is the ‘King of the north’ as the solution is used by a good number of MFBs in Northern Nigeria. This CBA meets all the requirements and standards for a suitable management information system (MIS) as provided by CBN.

POM CBA is widely adopted by a good number of MFBs in the eastern part of Nigeria. Owned by Super Digital Data Solutions, these CBA modules include – Credit operations (Individual and Group); Uncleared Effects transactions processing; Credit Bureau Report; Payment processing for Local Governments or other Bodies; eBanking, etc.

In a bid to ensure a cost-effective on-boarding of MFBs into a unified national payment system, the Central Bank of Nigeria (CBN) partnered with Inlaks in 2017 to deploy a single core and agent banking solution all MFBs under the auspices of the National Association of Microfinance Banks Unified IT Platform (NAMBUIT)… I believe the jury is still out on whether the set objectives of this initiative are being met.

Core Banking ApplicationCompanyInstalls
BankOneAppzone Limited340
SagamySagamy Limited90
Eazybank AXDatalinks15
POM Core BankSuper Digital Data Solutions40
Cute BankerDynaTech Solutions System120
MaxisoftMaxisoft Solutions100
Vino BankingVira Computers30
Recent BankerFoltoy Computers10
Temenos T24 (NAMBUIT)Inlaks40
Microsoft Dynamics NAVRealtech Global Frontiers40
Orbit RNeptune Software Group24

A few other solutions are worth mentioning, though they have much fewer live deployments in Nigeria; Banker’s Realm (Craft Silicon); TrustBank (Project Professionals Limited); Instafin (Oradian) and IntergraBanking (Integrated Software Services Limited. This is alongside some custom-built solutions that are live in several MFBs across the country.

On a final note, when considering and evaluating the choice of CBS to adopt for your MFB, ensure to obtain first-hand user experiences from current users. I am also available to engage further.


This post was originally done by Ifeanyi Duru at

10 predictions for digital payments in 2019

2018 was an exciting year for payments in Nigeria. Tons of cash came in as international investments; interbank transfer crossed 700 million transactions, even mCash had a little showing. Of course, the bitcoin bubble made a loud burst with many licking their wounds.

As usual, the following are my 10 predictions for 2019. They are mostly influenced by my understanding of the industry, discussion with various stakeholders, and my penchant for foolery. While these 10 predictions could be a guide for you, rely on them at your own risk.

Interbank transfers overtake ATM cash transactions
Come April 2019, for the first time ever and every month forever after, Nigerians will do more interbank transfers (using USSD, mobile, and online banking) than they collect money from ATM machines. Interbank has seen a steady 100% annual growth over the last few years and is poised to eclipse other payment methods as more bank customers gravitate towards USSD or can afford smartphones.

Payment Service Banking flops
The euphoria around Payment Service Banks (PSB) is unfounded as it is more about financial inclusion than fancy mobile or digital banking. Nevertheless, the poison pill of 22% CRR and 75% deposit with CBN as Treasury Bills is marking this as dead-on-departure. While a lot have applied, only a few will launch. MTN will find that it’s a different kettle of fish and would struggle significantly.

SANEF becomes a surprising success
Shared Agency Network Expansion Facility is a massive N32B undertaking by banks and NIBSS to haul in 30 million financially excluded Nigerians into the financial ecosystem. While it has been on for months with little to show apart from daily adverts by NIBSS, there appear to be unseen moves to make it a success. For example, adoption of a common API standard for account opening would help the super agents get to the market faster. The appointment of Ronke Kuye, a veteran of payments and a co-founder of CeBIH, to run SANEF is a significant step in the right direction.

A massive data breach or fraud hits some fintechs
Some months ago, someone found exposed data about Arik customers which included card details, phones, and emails. This discovery underscores how pervasive the security lapses have been for technology companies worldwide. When you hear about likes of Google, Facebook, and Yahoo having breaches, you know it’s a matter of time that a Nigerian bank, a fintech, or government agency is walloped. This time around, it would be a hit so hard they cannot sweep the stories under the carpet. By the way, some of these frauds would be done by internal teams.

CBN clamps down on errant fintechs
After the embarrassing frauds and data breaches, CBN will go into a knee-jerk reaction and go after banks and/or fintechs who do not have licenses. A lot of apps will disappear with many investors dollars following the pipe into the drain.

Interbank transfer becomes N20
CBN will update its rules to force banks to reduce their interbank transfer payments to N20 a pop. Bill payments and others will not change though.

Micropayments become free
Part of the CBN rule would say that transfers below N1,000 should not be charged subject to a maximum of N2,000 per day to engender financial inclusion and cashless payments. Customers will rejoice, and I will throw a party (just make sure you RSVP). Before you think I am mad, just remember that CBN made ATM withdrawal free in 2013 and only put a cap of 3 free transactions when banks went begging with their grandmothers. With the cost of interbank transfer down to N20 or even zero for transactions of N1,000 and below, micropayments will explode. Now you can pay for Agege bread with N50, and you won’t get charged.

International players go big
Whatsapp finally figures out how to connect your bank account (for some banks) to your app so you can now transfer funds instantly to anyone. And guess what, they will do it so well and so seamlessly that you wonder if our banks have been playing.

CBN does an about-turn on the new licensing regime
The Central Bank of Nigeria recently threw some gasoline into the fintech fire when it proposed to create 3 licensing bands of up to N5B capital requirements. Since then, everyone has been snipping at CBN’s heels.

Someone hacks AI for banking
A smart bank finally figures out what to do with the mess that Whatsapp banking. Instead of the rubbish flow, you will now be able to chat using natural language. I mean, if you can talk to Alexa in Ijesha accent with all the glory of “H factor” and it recognizes your voice, why can’t you chat with your bank Whatsapp and say “transfer N15,000 to Silifa” and it gets done?

I didn’t do too bad predicting digital payments for 2018

Last year, I wrote about 10 predictions for digital payments in 2018 (better to read this first). Looking back, I can assure you, my career as a seer hasn’t been as illustrious as I planned it to be. So how bad am I? Let’s take a look at how I scored myself.

Alat gets a (bigger) challenger (Score = 1)
Every bank looked at Alat and moved on. Not a single initiative came out to challenge the dominant digital bank which continues to garner critical acclaims world-wide. Likes of and are snipping at its heels though.

PSD2 instigates Open Banking (Score = 5)
Open Banking is no longer a swear word in the UK, and it has been primarily replaced by enthusiasm. Quite some countries are now on the open API bandwagon. Bahrain is a new country that published specific guidelines. Despite the excitement, the fire is like a table-warmer and not a bonfire.

Maturity comes to Fintech (Score = 8)
The Nigerian fintech ecosystem has grown significantly over the last 12 months. The growth is best represented by about 5 international fintech conferences done in Lagos to showcase opportunities. Additionally, some odd 5 Nigerian fintechs firms got into YC over the year. Likes of Paystack attracted top international investors like Stripe, Visa, and Tencent. and Cellulant raised a ton of cash. What else can we ask for?

Smaller Fintechs instigates price war (Score = 0)
No price war happened. Prices are same. Everyone is cranky.

Bitcoins bubble explodes, killing many (Score = 10)
Last year, BTC was dancing around $20K with investors (real and Babalawos) predicting $100K per coin. Of course, the bubble made a loud splat with values dropping 80% over the last 1 year. Many of my friends who were coin fanatics then have lost their voices. Can’t gloat but don’t equate greed with tech.

International players come to lunch (Score = 7)
Opera made a serious inroad into Nigeria with the launch of Opera news that now has 28m active users. The company will also start to lend to all my cousins soon.  Stripe and Tencent are also putting a tiny toe via Paystack. Please come! We will take care of you.

Android supports pay with Paga (Score = 0)
Nothing happened. Sorry, come back later.

Fraudsters get a beating (Score = 0)
Nothing changed. Stop Fraud Africa floundered and never launched. People are still getting scalped day-in-day-out.

Retail digital lending become prevalent (Score = 7)
Digital lending is on a tear with likes of getting $13m to play. But with just 0.77% of all loans going to individuals, the journey is still very far!

AI to the customer service’ rescue (Score = 0)
You would have thought that the opening of Whatsapp APIs for banking would bring decent AIs to help customers? Fat chance. Practically every implementation has been sub-par. Just someone copying and pasting USSD menu into a chat. Disappointing.

I scored a measly 38 out of 100; which is even less impressive when you considered that I marked myself. Next year, take my predictions with a pinch of salt, but then 38% accuracy about the future is better than most prophets can handle. Maybe I am not so bad after all.

Read the original predictions here: and subscribe to my blog to get other posts whenever I can summon enough energy to write them.

%d bloggers like this: