With Nigerian Banks asked to lend more, experts say the focus has shifted to Credit Bureaus. In an interview with BusinessDay, Ahmed Tunde Popoola,
Managing Director/CEO of CRC Credit Bureau Limited explains how the presence of Credit Bureaus guarantees easy access to credit for individuals and businesses.
Given your position in the industry, I would like to know if the Credit Bureau Industry in Nigeria has come of age?
I think 10 years down the line a lot has happened and I won’t say that we have come of age because there’s still a lot to be done but I will say we have recorded significant achievements when we put it side by side with what our objectives are, what we set out to do and how we wanted to impact the lending landscape in Nigeria.
As at 2009, when we came on board, the credit penetration was just around 4 percent and access to credit was extremely low with credit only going to high net worth individuals and very big corporations. SMEs that constitute over 90 percent of the totality of businesses in Nigeria, contributing over 80 percent of employment and over 40 percent of GDP did not have access to credit. Consumers also did not have access to credit but things are changing, as we speak today and that is mainly because of what we have been able to do as a credit bureau in Nigeria.
What are those areas we are meant to address? We are meant to address the information asymmetry between the lenders and borrowers, close that gap of “oh I don’t know you, is only you that knows who you are”. We are meant to address that by making sure that relevant information about borrowers are available to lenders so that they can then make informed decisions. We are meant to help them make these decisions on a loan application with confidence and then with that level of trust on the information that they have.
We are meant to help them share information of their customer-borrowers among themselves, help them reduce the risk by de-risking the lending space completely by bringing down the level of non-performing loans and of course, give them all the tools that will help them to bring out a lot of products and services that can then help make loans or credit available to consumers and SMEs.
So in all of this, the focus has been what are those things that we can do, to help them identify the people and the businesses they should be lending to. In other words, marketing tools that they can use to identify good customers.
We have products that help them to process and grant loans including products for monitoring loans that have been granted. Also, if any loans have gone bad, there are those products to help them in the collection and management of defaults.
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Today Credit Bureau penetration in Nigeria has moved to 14 percent from 4 percent. That is still a far cry when you compare to other economies and other countries, but it is not where we were eleven years ago when we started.
The levels of non-performing loans have gone down; in 2009 it was 32.8 percent today it is a single digit at about 6 per cent, courtesy of the fact that there is now information sharing among banks and other financial institutions in the country, and of course, there have been a lot of products that have come onboard from banks and non-banks generally.
In those days hardly do you have any bank offering credit cards, having a special SME desk or doing consumer loans. All of that today has changed as virtually all the banks now have SME desks that helps them to attend to the credit need of SMEs.
Most of the banks have retail and consumer loans, even for small amount of loans, payday nano loans, and today you have quite a lot of other operators in the fintech space, money lenders who are also now in the market to be able to assist to get credit to individuals and to small businesses. All of that become possible because they now have a database which we have created to assist them get relevant data to be able to do that.
We also assisted the credit industry to change the lending models by de-personalizing credit processing. In those days you had to sit down with the bank manager or credit analyst or your banker to discuss writing an application, your collaterals, who you know and all of that, but not anymore. It is now live connections so that within a few seconds or few minutes you can get loans as individuals. These are part of the things we have assisted in bringing to this industry.
We assisted the banking industry to have a unique identifier because we were at the forefront of getting a unique identifier for the banking industry which is the BVN that everybody relates to. So, that this is also a major achievement through which we have been able to support lending in Nigeria and of course, we have assisted in the ease of doing business as well. Nigeria moved almost twenty-four places from 169 to 145 in the ease of doing business ranking in 2017 and the significant factor that was responsible for that improvement was in access to credit, which was largely as a result of the presence of credit bureaus and the fact that the credit bureaus now have credit scoring solutions for Nigerians.
We can say that we have been able to change the way lending is done, to excite the industry to change their business model in lending, de-risk the lending space, get other creditors into the lending space, force the financial institutions especially the banks into retail loans and consumer loans which they were not offering before and finally bring down the level of non-performing loans.
So overall our essence is to boost access to credit, and we think we are doing that significantly, but it can only get better.
This is where we are today, we know that with time and with the level of activity taking place in the lending space, in a few years to come we would have much more improvement in credit penetration in Nigeria.
I would also like to know from the consumer perspective what your assessment of the credit culture in Nigeria is like?
Nigerians generally, maybe from the part I come from, we don’t like loans people and don’t want to be stigmatized.
It is a stigma for a lot of people to borrow and they believe that they should live within their means and should be able to make their savings or approach people close for support whenever there is a need like for a project, business or even having some basic things at home.
But we know that nobody enjoys life through that because you will then be limited to only what you can raise and what you can afford. We know that all over the world the people that are in prosperity and the economies that have significantly eliminated poverty or significantly reduced it also have been able to open up their people to embrace credit culture. If you want to wait to gather resources on your own, then you may never have the opportunity to achieve some life ambitions.
So it requires a lot of education because while there are bad sides to credit, the good side of it outweighs the bad side.
Today, we have seen significant migration, we have seen a significant change in the way people perceive credit, and quite a lot of people are embracing credit either to start a business and then get their working capital or to grow existing businesses, or have consumption of certain things so that they can live a better life and have the basic goods like television, car and air conditioner. These are things that ordinarily you can buy and pay for over few months especially when you have regular means of income as the case may be.
We can say that things are changing and it will get better but it is changing far much more for salary earners than for non-salary earners. I think as we move on, and the creditors themselves are thinking of how to service non-salary earners, which are normally the informal sector that will always need help the more..
The economy itself is about transactions. You transact in cash or credit so if you transact only in cash then it is limited. People should appreciate that you can always transact in credit.
That is the way an economy grows, that is the way to get people out of poverty and to empower people.
What factors can accelerate the transition from cash-based to credit-based economy for Nigeria?
Like I said earlier the credit bureaus penetration is about 14 percent and credit penetration is around 11 percent which is it still very low compared to even Ghana or Kenya as the case may be.
There are some basic things we do need to do to improve upon the transition. Government has done very well by licensing credit bureaus which is required so that creditors can have some good information about the people or businesses they want to lend to but what can help this process is a means of identification. We need a unique identifier, we need to be able to identify uniquely not by carrying I.D cards but by a number that is completely and permanently associated with someone and then with that, every lender and everybody who is engaged in a transaction in an economy knows who they are relating with and at a touch of a button they can identify who that person is, This will help a lot. There is no economy that is really successful that does not have a unique identification number for its citizens; it is either in form of social security number for a lot of countries especially those in Europe, America and other parts of the west or unique identification numbers as in Egypt, South Africa or India.
Nigeria has the National Identity Management Commission that has been entrusted to do this but I don’t think they have been given enough support to be able to make sure every Nigerian has a means of identification. If we can have that and it is robust enough and it is not compromised in any way then that would help because lending has gone to digitisation phase and we have quite a lot of lenders who rely on technology, machine learning, blockchain and artificial intelligence to be able to look for individuals who they want to do business with but if those individuals are unknown with no means of identification then they will try to look for surrogates or other means of identification which are less effective. So that is very important in driving access to credit for consumers.
For SMEs, they need to formalize as they are a lot of informalities in that sector. We have over 41 million MSMEs and the majority of them are micro or one-man businesses without offices, structures, financial records or bank accounts.
When your SME sector that is supposed to be contributing so much to employment is characterized by informality then it becomes difficult for them to access credit because it is difficult to document them and appreciate the enormity of the businesses they are doing.
Therefore, credit penetration is still low. The government, therefore, must design policies that would encourage small enterprises to register their businesses.
Also, we also need to encourage these small businesses to facilitate their transactions through the banking system as much as possible, have books of account and record keeping, do basic audits of their books which lenders would want to rely on as form of a third-party confirmation of transactions , and governance around the day-to-day running of the business.
This would naturally lead to more SMEs having access to credit.
The third has to do with the cost of business. Without electricity, it is very costly for businesses to even come up with products.
Finally, the judicial system is something we can improve upon; adjudication when it comes to commercial issues between vendors and buyers, borrowers and lenders take a lot of time.
Because lenders are parting with the cash and do not want to lose their money, they will be extra cautious in evaluating borrowers before granting loans because once the credit is approved and disbursed, the borrower becomes the king.
So lenders need to be more comfortable about the judicial system’s ability to help in the timely recovery of loan or collateral in cases of default.
On the issue of ID. Is the problem the unavailability of sufficient means of ID or lack of integration of the ID systems?
So the first question to answer is why do we have multiplicity of IDs? You have a driver’s license that’s a unique number to you, an international passport that allocates you a unique number; you go to your bank and open an account and you are given another unique number in form of BVN. These are three numbers. Then you pay your tax, you have another number, you do pensions you have another number. So you have 5 different numbers of identity for one person. Why can’t we just have a single set of numbers at birth and that’s sufficient for anything and for everything and that person carries that number for life? For those who are already existing, give us one set of numbers and then collapse all these forms of identification into that set of numbers.
I know that’s what NIMC is trying to do but they have not been able to achieve that, so that’s the problem. There is no merit of any sort in having multiplicity of IDs, in fact, it is expensive because the government needs to have a budget for each of those agencies that have become silos and see themselves as providing identity in the economy; meanwhile, it is not necessary.
So the earlier one can collapse all of them into one, the better for us and then moving forward, make sure that when you have a number, that number is for your passport, your driver’s license, etc.
How would the pandemic impact credit scores?
It is a very serious issue and it is quite unfortunate that we have found ourselves in a natural disaster; this is an infection and a pandemic so it is not anyone’s making.
I am happy that there has been some significant responses by the Nigeria government through the ministry of health, the office of the secretary of the government of the federation and the CBN.
The CBN has issued a stimulus of 1.1 trillion Naira package, before then they said all interest rates on their intervention funds should be brought down from 9% to 5%, so those are very good steps to cushion the effect.
The implication of the pandemic is that borrowers may be unable to pay their loans and that can have adverse consequences for their credit score because credit score talks about your ability to honour your obligations but if you are unable to work and unable to earn how do you service your loans?
I think the solution is in part of what the Central Bank has done, to allow restructuring of loans and that way they would not have a negative impact as it will not be recorded that they were unable to pay; rather, it will be recorded that the loan has been structured and they’ll probably have a longer time to pay those loans.
CBN has appealed to all lenders to go and look at their loan books and see how they can help in this situation and I completely support that. I am aware that there have been some good responses to this call.
How accessible and affordable are credit bureau products?
When we just started you had to physically visit our office or write an application through an email to get your credit report, your credit score and so on.
Even for our customers who are banks and financial institutions, a lot of their users had to log onto our website and use it to access information but we have gone far beyond that and we now have what is called a Live Connection that has been made possible through Application Program Interface(s)( API) for our customers so they can access data from our database to process loan applications and update the credit information of borrowers in real time.
This enables them to do a high volume of transaction every day, 24/7 including Saturday, Sunday and public holidays so there is no inhibition for access and processing of loan transactions and data submissions.
For individuals who may be interested in their own credit score or credit report, CRC has developed a mobile application called CRC Mobile. You can download the CRC Mobile app from the Google and ApplePlaystores or so once you download it on your phone, anywhere in the world, you can register, request and pay for your Credit Score or Report through your phone.
There are so many products and services on the CRC Mobile app ; we have the CRC Score if you want to check your credit score, we have the CRC elf-enquiry Consumer and Corporate if you want to know your credit report that can tell the history of your transactions for the last 24 or 36 months.
You can access all of these through the app and prices have been slashed or completely brought down by at least 50% to encourage everyone to carry out regular check-ups on their credit history before borrowing. They don’t need to get to the point of applying for a loan and then get told they have a bad credit history or their credit score is too low.
I would like to know what is your outlook for Credit Bureaus and the economy in 2020?
I think from what is happening, everybody will have to go back and rework their future.
When the federal government and companies were preparing their budget last year nobody foresaw COVID-19. The virus is now very rampant and the pandemic has significant implication for commerce .
All of this brings in a negative outlook for business generally, so I think we all have to go back and have some level of moderation of expectation. The bureaus are not excluded because really if people are unable to do business, it affects their ability to pay back their loans and it will have significant implications for credit bureaus as well.
I think what we should be working on, is to ensure that government prevents another recession. A lot of countries in the world may go into recession and do not forget, we are just coming out of one and our economy has not even reached that pre-2016 recession level. The government must stimulate the economy.
