Consumer loans inspire a virtuous economic cycle
Focusing on consumer/retail loans requires specific business model, skills and infrastructure which most Nigerian banks have yet to invest in.
In this interview, Tunde Popoola, Managing Director and CEO, CRC Credit Bureau Limited, speaks on the consumer loans market in Nigeria.
Financial Nigeria: Why is retail credit to consumers and SMEs still not gaining much momentum in Nigeria, in spite of the information which credit bureaux including CRC Credit Bureau can provide lenders, on demand?
Tunde Popoola: Consumer loans boost an economy because they enhance effective demand by activating consumer spending and consumption. Increased consumption provides the possibility of increased production, fuelling employment opportunities. It all seems to be a virtuous cycle.
According to statistics by Central Bank of Nigeria (CBN), the value of consumer loans moved from N584 billion in 2012 to N786 billion in 2015. This is 35 per cent growth in three years. This does not look bad.
But if we situate consumer loans as a proportion of total loans to the private sector, it gives a different picture. The total consumer loans of N584 billion in 2012 was about 7 per cent of total loans to the private sector, whereas, the N786 billion consumer loans in 2015 was just 6 per cent of the total loans to the private sector. These statistics point to the fact that in absolute terms, we see growth but in relative terms, the growth is not commensurate with the overall loan growth as more and more of the loans still went to the large corporate and commercial entities.
In the last three years, there has been consistent growth in the total loans to the economy, but the share that went to consumer loans has been diminishing.
I will, however, rather see it as a glass half-full and not a glass half-empty phenomenon. There has been some improvements in consumer lending in Nigeria. Some people may disagree since this is difficult to justify in relative, rather than absolute, terms.
The number of consumers who obtained loans moved up from three million in 2014 to about four million consumers in 2015, a 33 per cent growth in one year. Therefore, it is not totally correct to say that loans to consumers have not improved in Nigeria. From my position, I know that a lot of effort has gone into the stimulation of credit to consumers and SMEs by the banks. Virtually all commercial banks now issue credit cards and they aggressively market the cards now.
More than half of the commercial banks have SMEs desks, which was not the case in the past. There are alliances and partnerships with retailers and auto-dealers by some banks to facilitate access to auto and retail loans. I am also aware that some banks have been supporting SMEs in building capacity and providing market information to assist them to build credible information and improve on governance, which are necessary for loans to be granted.
To improve in granting loans to consumers, some banks have leveraged on the existing credit bureau infrastructure. They obtain a lot of information from us, in terms of knowing who is already enjoying what, the kind of facilities being enjoyed, the performance of such facilities and of course, the demographics of the borrowers.
However, the reality is that there are certain features inherent in consumers and SMEs that still make it difficult for them to obtain credit in Nigeria. The challenge of means of identification remains an issue. Only a fraction of the population have registered and have their national identification numbers. The banking industry introduced the popular Bank Verification Numbers (BVN) but less than half of bank customers have been successfully enrolled, almost two years into the project. In addition, the Nigerian economy remains largely informal and earnings are very low with the implication that a lot of people do not have the capacity to borrow from the commercial banking system. This is compounded by the fact that a high proportion of jobs are in the informal sector, and a lot of jobs have been lost due to the present economic realities thereby compounding the unemployment rate and low earnings.
For us to achieve the change we would like to see in the access to loans to consumers and SMEs, a lot needs to still happen. The bankers need to change their lending model and infrastructure as the current arrangement cannot support the scale required in consumer loans. Also, the means of identification must work and work efficiently so that persons can be properly identified and traced. SMEs still need to ensure they do minimum book keeping and governance. The Bank of Industry has made an attempt to help the SMEs in this regard to prepare them as candidates that can be considered for loans and we need to give some time to assess the success of the scheme.
FN: How can we better spur retail credit from today?
TP: This cannot be a quick fix but we can do a lot of upscaling in retail credit even with the level of lending infrastructure we currently have. And talking about lending infrastructure, I am aware of the very good news that Nigeria collateral registry will soon become operational. When it becomes operational, it will enable the use of movable assets to be used as collateral. This is expected to particularly liberalise the use of collaterals, thereby enabling more small businesses to obtain loans under more favourable collateral requirements.
Leveraging on the credit bureau information and their other product offerings can lead to significant scale in loan processing and approvals for banks. We have a lot of information which we have put at the disposal of lenders in forms of many products. The essence is to enhance their decisions, armed with facts. Some of the products enable them to prospect new customers. The interesting thing is that the data in our repository is not just information from the commercial, merchant and mortgage banks. Most microfinance banks scattered all over the country and some cooperative societies are now providing data to the credit bureaux. Much more, CRC has started receiving data from electricity distribution companies, a form of data from utilities. There is no doubt that a lot of lending is taking place in the informal markets and the data from utilities and the informal lenders could be useful to formal lenders if they know how to purify it.
Furthermore, new lending models that promote partnerships between bankers and big retailers can lead to the scale required. Banks and retailers can leverage on the quantum of information at their disposal with those in the credit bureaux, Banks Verification Number (BVN), and national identity to unveil a new era of consumer lending in the country. Large retail stores are becoming fashionable in Nigeria and patronage can be substantially improved upon if they can partner with financial institutions to provide credit to consumers under generous credit terms.
Another significant source to spur loans to consumers and retailers is in government policy towards housing. Mortgage is still an elitist arrangement in Nigeria available only to the middle class with good, secured and salaried jobs with the properties in the high-end of the major cities. Mortgage products are still very limited. We need to unleash the hidden potentials in housing to promote mass housing with generally acceptable pricing and credit terms. The information in the credit bureau system today can really help if used together with some other data available in the country such as the various means of identification and information from telephone usage.
FN: Given that NPLs from the banks are from the wholesale credit and trade finance, do you believe that the banks are right to continue to insist that retail credit is riskier than wholesale credit/trade finance (especially oil and gas)?
TP: The reality is that focusing on consumer and retail loans requires specific business model, skills and infrastructure which most Nigerian banks do not have and which they are not ready to invest in. In addition, when you eventually focus on this segment of the market, there is going to be the learning period at which time you may experience losses through high NPLs and the required volume would not yet be there because you are just starting and learning and trying to build a base.
Most Nigerian banks do not have such patience and luxury of time; ostensibly so, because of pressure from peers, their board and their shareholders. Remember that processing and managing small loans over thousands and millions of customers is a completely different ball game from managing a couple of large corporates. But the good news is that most of the banks have seen the reality that the future of lending is in retail, consumer and SMEs loans. A lot of them are already doing all that is required and necessary to go large scale with this segment of the market including hiring the expertise and the loan applications, including scoring solutions, to go into this market.
Finally, the current economic realities do not help matters. The few of them that even lend to employees of known companies still lose money as these companies lay off employees. But the solution is still in the fact that, when a bank takes a long-term view of this, they will have the critical mass and the NPLs will eventually be moderated at very low level and they are bound to have good returns. After all, the big national microfinance banks that are run with high level of good governance are doing well, making profit and impacting lives.