Credit providers may be in the business of helping people achieve their dreams by making available finance when needed. But they are certainly not not-for-profit organisations. The credit they give are not often personal but funds they received from investors whom they are obligated to make a return at a specific time.
Credit providers make money from the interest rate they charge on loans. In Nigeria, the rates vary widely from the threshold of 13.5 percent set by the Central Bank. While most banks charge between 21 to 26 percent for individuals and businesses, non-bank lenders can go as high as 35 to 50 percent.
Notwithstanding, access to credit is not as ubiquitous as many would expect. For instance, it took an imposition of a 60 percent loan-to-deposit threshold to get Nigerian banks to increase lending to small businesses. Currently, the CBN has increased the landing target for banks to 65 percent.
But banks’ willingness to give collateral-free loans to businesses and people often depends on the amount of information they possess the recipients. Small businesses and individuals are leaving vast amounts of digital footprints and data trails on mobile and online payment platforms, social networks, and other non-banking platforms such as online record keeping and trade transactions.
These vast amounts of digitized alternative data when mined can aid financial institutions in the decision-making process and promote financial inclusion. This is where credit bureaus are playing a significant role in helping expand access to credit in Nigeria.
A credit bureau refers to an entity that collects and shares information about the creditworthiness of individuals and businesses. Essentially, they are set up to gather information about people’s loan performance and the information gathered includes previous loans that have already been paid, new loans that have just been collected, how the loans have or are being serviced and if there are any outstanding balance. It also includes the contact addresses of the borrower.
Credit bureau operations in Nigeria go back to 2003. Today, there are only three national credit bureaus licensed by the Central Bank of Nigeria. These include CreditRegistry Plc; FirstCentral Credit Bureau; and CRC Credit Bureau. Recently, the three bureaus formed an association called the Credit Bureau Association of Nigeria (CBAN). The association has a mandate to promote the development and use of credit reporting in Nigeria.
Apart from banks and credit firms, companies outside the financial services sector also use the services of credit bureaus. This is because the credit bureaus also serve as an accountability mechanism that influences behaviour and stimulates honouring business agreements and obligations. In other words, they champion a high level of financial responsibility of the public. They also make possible the processing of millions of loan decisions every day and in an automated fashion.