A few weeks ago, I wrote a post about what stakeholders in digital finance could do to improve access to credit. A key recommendation was that lenders should report both positive and negative results of all loans to the credit bureaus, and their investors should also insist on this basic human right. The rationale is quite simple — one of the key causes of high rates is loan defaults. If lenders can see that a loan applicant has a history of poor payment then they are unlikely to grant a new loan. Conversely, a borrower who can demonstrate through the bureaus a history of good performance should be rewarded with more access and cheaper financing. This is not rocket science.
McKinsey’s recent report on retail banking predicts $2.4bn worth of retail growth in Nigeria between 2017 and 2022 or about N864bn in local currency. To put this in context, GTB’s retail & sme book as at June 2018 stood at N120bn and I estimate GTB has 40% of the retail market. For McKinsey’s prediction to make sense (and we all know McKinsey likes to throw around big numbers), GTB will end up with about N464bn in its retail book by 2020. This implies a 30% year on year growth in its retail book. Aggressive but achievable. But I don’t think more than 2–3 banks can achieve this growth rate without significant investment in people and technology.
Moreover, a critical piece will be a robust and functioning credit reporting infrastructure which ahem, we don’t have yet. At a recent seminar on retail lending in Nigeria CRC Credit Bureau shared two sobering stats. Firstly, only about 10% (compared to 45% in South Africa) of lending from financial institutions go to consumers and SMEs — presumably the bulk of that is to SMEs and not consumers. Secondly, even though there are over 30mm accounts biometrically registered with Bank Verification Numbers, there are only 17.9mm records in the Credit Bureaus. Tunde Popoola of CRC estimates that only about three million Nigerians enjoy credit from the banking system at any point in time from all the 22 commercial banks in Nigeria. My estimate is that there are less than 250 thousand hits or reports returned from credit bureaus a month. Just over 13,000 hits per bank. Giant of Africa!!
Given the dire state of Nigeria’s credit reporting framework, and the importance of credit bureaus in retail banking, it is amazing how few lenders report such data. There is a growing and worrying tendency to organise conferences fill annual reports with pithy phrases whilst pronouncing eternal committment to financial inclusion. There are investors who preach financial inclusion ad nauseam yet turn a blind eye when their portfolio companies refuse to share data with the bureaus for “competitive” reasons or other balderdash. There are even some blue-blooded ones that support unlicensed lenders. Imagine!! But that is for another post. In the meantime we pray for them that they practice what they preach.
So today and swimming against the tide of some of our industry cowboys, Paylater will go one step forward in our goal to serve the next billion. From next week, every loan applicant will receive a credit report to increase awareness about data that is used in the lending decision and provide an opportunity to improve their credit worthiness. Our goal is threefold
- For applicants whose report is empty, you can fix that easily by going to a credit bureau and providing more information. The greater the data, the less the uncertainty about lending to you. Low data = higher interest rates so provide as much data as possible to reduce your cost of borrowing.
- Good borrowers whose loans are not on their credit report. Please call your lenders and insist that they send your loan history to the bureaus. Its the least they can do to reward you for paying your loan. If they refuse, at least now you know a lender that will 🙂
- Lastly, if you are lucky to have all your previous loan transactions on the report and your repayment history is good, then by all means use the report as a way to get cheaper loans from other institutions. You deserve it!!!
Nigerians are agitating to exercise their democratic freedom by registering to obtain permanent voters cards in order to participate in the next elections. In a similar manner they should be encouraged to attain financial freedom. The first step is making sure they are part of the formal financial sector — and inclusion in the credit bureaus is a strong building block. Your democratic rights are trampled when your vote is not counted. Similarly, your financial rights are impinged when your loan history doesn’t count.
Say no to financial rigging.
