Consumer lending to rise 21% by year-end

Nigeria’s consumer lending is expected to rise by 21.4 percent to N1.74 trillion in 2021, from N1.42 trillion in 2020, according to a recent report by Euromonitor International, a London-based market research company.

The 2021 forecast figure is expected to be the highest since the company started the report in 2016. From the company’s past reports, the country’s consumer lending was N879.8billion, N758.6 billion, N758.9 billion, and N1.11 trillion in 2016, 2017, 2018, and 2019 respectively.

According to the report titled ‘Consumer lending in 2021: The big picture, consumer lending will continue to record growth in 2021 despite the negative impact of the COVID-19 virus on the macroeconomy, with rising interest rates, currency inflation, and higher unemployment rates.

“A major reason for the continued growth is the apex bank’s loan-to-deposit ratio (LDR) policy, which has required banking institutions to increase their consumer lending to meet regulatory guidelines. Prior to the LDR policy, the outstanding balance on consumer lending was declining,” the report stated.

Although the percentage of consumer loans to total banking loans continues to grow, it remains less than 10 percent due to the huge structure of commercial lending as banks prefer to focus more on secured commercial lending to generate more income given the bigger budgets of businesses versus individuals, the report adds.

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Consumer lending is centred on the individual and household consumers and includes home and auto loans, as well as personal loans extended to people who need the funds to solve problems.

When the pandemic struck in 2020, it negatively affected the finances of households and consumers in Nigeria. To cope with this challenge, the government had to provide credit facilities with easy repayments and single-digit interest rates.

Experts have said the rising consumer lending is a positive development for Africa’s biggest economy which is already fragile and weak, as it will help boost consumer spending, sales, economic activities, and growth.

“Most economies that run on credits are developed as it increases consumer spending which is key for any economy to grow,” an economist who wishes to be unidentified said.

He adds, “The faster companies are able to move items out of their stores, the more economic activities increase thereby making people more employed.”

Similarly, Damilola Adewale, a Lagos-based economic analyst said that credit has a multifaceted impact on consumers, entrepreneurs, businesses, and investors.

“If you look at the GDP structure of Nigeria, you will discover that consumption accounts for between 60-65 percent of our GDP, so channeling credit to households will help boost consumer spending which in turn facilitates aggregate demand,” Adewale said.

The report also highlighted that there has been growing competition between the traditional banks and Fintech companies in the consumer lending space, with the latter taking advantage of the gap in slow loans approval and low accessibility typically associated with traditional banks.

“Many Fintech companies are offering Nigerians rapid approval (sometimes within 24 hours of application) and convenient access to loans, with the process fully digitised. This scenario has led to the more dynamic banks, such as Access Bank and GTBank, to enter the digital lending landscape with technological innovations,” the report stated.

BusinessDay has earlier reported that some Fintech companies in Nigeria were democratising consumer lending by making it more accessible to a large segment of the population through the Buy Now, Pay Later (BNPL) model.

The BNPL model is a form of short-term financing that allows shoppers to purchase items and claim immediate ownership by paying a portion of the cost now and spreading the balance over an agreed period. Some of the Fintech companies using this model in the country are Carbon, EasyBuy, and CredPal.