A strong credit system promotes credit to consumers and credit to businesses-Popoola

Popoola

A strong credit system promotes credit to consumers (individuals) and credit to businesses, especially the micro, small and medium enterprises, MSMEs.

With access to credit, effective demand is stimulated. And this propels an increase in demand for goods and services. If an economy is supported by access to credit also for commercial enterprises, production is enhanced. Access to credit for businesses is productive credit and it certainly helps to promote economic growth.

The Group Managing Director/CEO of CRC Credit Bureau Limited, Tunde Popoola, stated the above while delivering his speech with the theme: The Role of Credit Reporting in Facilitating Consumer Credits at the May 2022 forum of the Finance and Business Online Publishers’ Association FiBOP, held on Tuesday, may 31st, 2022 in Lagos.

He maintained that consumer credit is an important element of any economy. “A consumer’s ability to borrow money easily allows a well-managed economy to function more efficiently and stimulates economic growth”, he said.

A consumer credit system according to him allows consumers to borrow money or incur debt, and to defer or spread repayment of that money over time. Having credit enables consumers to buy goods or assets without having to pay for them in cash at the time of purchase.

“Today, most successful economies are driven by credit. In the press release dated May 10, 2022, the Federal Reserve Bank of New York’s Center for Microeconomic Data, issued its Quarterly Report on Household Debt and Credit in the USA stating that there was a solid increase in total household debt in the first quarter of 2022, increasing by $266 billion (1.7%) to $15.84 trillion. They highlighted that “balances now stand $1.7 trillion higher than at the end of 2019, before the COVID-19 pandemic”. It was highlighted that the report is based on data from the New York Fed’s nationally representative Consumer Credit Panel”, he noted.

The GMD further stated that the Central Bank of Nigeria’s monthly economic report for October 2021 indicated that the growth in consumer loans was driven by a 52 per cent, year-on-year increase in personal loans, and rose to N1.57 trillion in October 2021.

“The provision of consumer credit has a key economic function and is a largely beneficial activity, propelling spending and thereby increasing income levels of a country. It enhances productivity and leads to higher Gross Domestic Product (GDP). It has been proven repeatedly that an economy with strong credit culture improves standard of living, stimulates growth, and ensures prosperity of many of its inhabitants, by enabling borrowers to purchase goods and services and spread repayments over time. This makes it possible for consumers to purchase items they need without having to fully save to purchase these items. For example, they can enjoy reasonable access to basic and good things in life such as food, shelter, education, commuting, etc and some relative luxuries. Many items from motor vehicles, to houses and even television and air conditioners are too expensive for most people to pay for all at once, with their own earnings or savings”, stressed.

Photo Captions: From Left… The Group Managing Director/CEO CRC Credit Bureau Limited, Tunde Popoola; the Chief Commercial Officer, CRC Credit Bureau Ltd, Peggy Chukwuma-Nwosu and the Branding & Communications CRC Credit Bureau Ltd Manager, Sike Ighile at the Forum.

The CRC Credit Bureau Limited boss further stated that the low access to credit in Nigeria is practically demonstrated in various ways, apart from through credit penetration and credit bureau coverage. “First, only few Nigerian consumers and SMEs enjoy credit facilities from Nigerian banks. According to statistics, Nigeria could boast of over 41 million micro, small and medium enterprises (MSMEs). In a report jointly released by the Small and Medium Enterprises Development Agency of Nigeria, SMEDAN, and the National Bureau of Statistics (NBS) on January 12, 2022, the MSMEs represent over 96.7 percent of total businesses in Nigeria; they contribute about 46.31 percent to GDP and 6.21 per cent of gross exports during the year under review. However, less than 5% of Nigeria MSMEs have access to credit”, he added.

“Furthermore, Nigeria has been characterized by significant disproportionate allocation of credit to different sectors. The sectors that contribute the most are denied credit while credit goes to the sector with relatively little contribution to the GDP. For example, while agriculture contributed over 21 per cent to GDP in 2018, the share of bank credit to agriculture was the lowest at 3.8 per cent. On the other hand, while oil and gas received 23 percent of bank credit, its contribution to share of GDP was less than 10 per cent. In addition, the cost of borrowing is very steep in Nigeria, and this serves as a disincentive to borrowing to a lot of businesses especially the SMEs”, he maintained.

In appreciation of the challenge of low credit penetration according to him, a significant number of actions have been taken by the government and creditors, mostly financial institutions. “Overtime, since independence, Nigeria has established many specialized banks to mitigate the gaps in access to credit. Today, we have the Bank of Industry, established in 2002 to support access to credit for SMEs and manufacturing companies; Bank of Agriculture established in 1973 to enhance access to credit for agricultural purposes; the Nigeria Export Import Bank (NEXIM) was established in 1991 to encourage production for exports. In recent time, the Development Bank of Nigeria was founded in 2011 to provide wholesale credit to microlenders for on-lending mostly to micro enterprises while The Nigeria Incentive-Based Risk Sharing System for Agricultural Lending (NIRSAL) was incorporated in 2013 by the CBN as a dynamic, holistic US$500 Million public-private initiative to catalyze the flow of finance and investments into fixed agricultural value chains”, stated.

Speaking further, he said, “The government has established several initiatives and intervention Funds to support access to finance for specific sectors. Examples include the N200 Billion Small and Medium Scale Enterprises Guarantee Scheme, SMECGS, launched in 2010; N200 Billion SME”.

“Restructuring and Refinancing Fund under the management of the Bank of Industry; N100 Billion Cotton, Textile and Garment, CTG, Fund established in 2019.

“In the past, the government has directed deposit money banks to set up special funding schemes to encourage access to finance especially for SMEs and the agriculture sector. Most of the schemes met with limited success and impact. In 2019, the government directed deposit money banks to give out a minimum of 65 percent of their total deposit and other liabilities as loans under a LDR scheme orchestrated by CBN”, stressed the GMD.

“In line with the trend to promote access to finance through an efficient financial system, most governments now adopt tools of monetary and fiscal policies and financial reforms that enhance access to credit and promote overall development of the financial markets for all”, he noted further.