Regulatory pronouncements and competitive activity have combined to boost financial inclusion in the Nigerian economy as banks compete with non-bank financial institutions to offer consumer credits. As they advertise it, citizens can now get up to N5 million in loans within 24 hours of applying. It is a brave new world for financial institutions, the Central Bank and the man on the street seeking financial assistance.
There are many opportunities and threats in this new world with potential consequences for us all.
Nigerian banks ignored customers for several years. Bank loans were out of reach and required the equivalent of the proverbial camel passing through the eye of the needle. Collaterals required by banks were lengthy and became the staple of humour when Nigerians lamented the situation of their country.
Nevertheless, the banks made strenuous efforts to acquire customers aggressively. Some even opened accounts for minors without charge and with exciting incentives. It all looked promising until a customer required a loan to tackle a project, overcome financial shortfalls etc. The story would change instantly, and the bank would become hostile until recently.
New financial technology (fintech) enabled non-bank financial institutions to jumpstart the credit bonanza. Convergent mobile phones are the primary tool. Customers can apply on their phones, the fin-tech institutions do verification with credit agencies and the customer gets his loan within two days at most.
The traditional banks have joined. They are offering as much as the non-bank institutions. They are also staking their pedigrees as part of the attraction.
Speed, broad reach, the convenience of technology and many are the citizens who have acquired these loans. The Central Bank’s directive on loan to deposit ratio is driving the traditional banks.
BusinessDay welcomes the new era in consumer credit in the country. Many positives attend this development, including increased access by citizens to financial resources. Lack of finance and access have always featured as impediments to growing economic prosperity in the country, particularly for the ordinary citizen and small-scale enterprises. Credit is now available.
With the availability of credit, there is a call for a higher degree of restraint and regulatory efficiency. Increase in the incidence of non-performing loans even with these small sums is a possibility against which the regulator must watch. Interest charges remain high in line with the rest of the economy. The banks advertise monthly interest charges that lure citizens who do not see the larger picture of the full-year costs.
Nigeria stands at the threshold of evolving a credit culture. Credit should stimulate growth in the local economy. It all depends on what borrowers do with their loans.
The new situation of availability of credits would require consumer education and acculturation. The loans are unsecured. However, the evolving credit ecosystem coupled with technology linking everyone means that the lenders can track borrowers. The security architecture in support of credits keeps getting better by the day.
Citizens must be watchful, so they do not fall into the trap of debt peonage. They need education on the management of these funds so that they can repay their loans. The interest rates are deceptively affordable until the time for repayment.
It is critical to teach borrowers to deploy their loans to projects that would repay and not merely to consumption. The loans are not free funds, nor are they part of their share of the national cake.
Handle with circumspection, professionalism and the more significant interest of the economy and society.
