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A Look at the Essence of a Good Credit System in Nigeria

In Nigeria, the banking sector pilots the economy, the sector dominates the Nigerian financial system as it accounts for about 90 percent of the whole assets within that system. We want to look at credit management within the industry vis-a-vis economic growth in Nigeria.

For the economy to leapfrog, Nigerian banks should support businesses and Individuals with the desired credit. Financial Technology companies (Fintechs) have taken over this space for millennials to easily source loans for personal use and this has improved the lives of individuals. Gone are the days that in obtaining a loan, no matter how small, one had to submit property documents as collateral to the bank.

Many Nigerians, through this means, lost their landed properties as a result of unsuccessful businesses that couldn’t repay the loans. The use of a landed property as loan collateral made lending restrictive as women, small business owners and entrepreneurs are mostly excluded from the credit worthy crowd. These set of people who are most critical to the growth and development of the economy will not get the funding that they need because they do not have the required collateral – land

Only two percent of Nigerians have access to credit facilities, financial institutions in Nigeria provide less than 10 percent of its credit facilities to consumers and MSMEs compared to other emerging economies. Nigeria is an entrepreneurial economy with an estimated 37 million micro, small and medium-size companies (MSME), contributing over 48 percent to the GDP, employing over 60 million Nigerians and contributing over 7 percent to exports according to the National Bureau of Statistics. In an era where diversification has become a much talked about topic, it will be foolhardy if we, as a country fail to act on the potentials of the impact of MSMEs to the economy, rather than just talking about it.

It is general knowledge that our MSMEs are plagued with a lot of challenges. A number of these challenges are however tied to the general characteristics of the business environment in Nigeria – multiple taxation systems, unstable government policies, management issues, high cost of doing business, difficulties in accessing credit, and so on.

CBN should utilize Credit Scoring to strengthen the banking sector for improved credit flow, also the character and financial statements of the borrower ought to be assessed properly to scale back non-performing loan, and CBN should lower its rediscount rate to enable banks to fix low rate thereby enhancing the expansion of the economy. These permits borrowers to prove their trustworthiness, and potential lenders to assess their ranking priority in potential claims against particular collaterals. The key objective of the stored cloud data is to push the acceptance of movable assets as collateral for loans and contribute to economic growth and development of the country.

Lending is one of the major functions of the bank, though most risky, any bank that wants to remain in business must lend. There exists a relationship between the loan and economic growth, and a negative relationship between interest rate, non-performing loan and economic growth.

Steve Onwuka | Community Manager at Korapay.

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