Access to credit is one of the ways to stimulate economic growth by providing additional funds to economic stakeholders. When this happens, the ripple effects are seen throughout different spheres of the economy as jobs are created and standards of living rise.
By Odun Eweniyi
As one of the largest countries in Africa, Nigeria is home to an entrepreneurial economy with an estimated 40 million micro, small and medium-sized companies, whose contribution to economic growth and job creation is significant.
But yet, less than a third of these MSMEs have successfully obtained a loan or got access to credit from a financial institution, according to a 2017 report by the IFC. Most of these businesses have had to resort to using personal savings or reinvested profits as a source of business financing. Outside of businesses, in 2017, the Central Bank of Nigeria expressed concern over the low level of credit penetration which was at the time estimated at 5.3% of the Nigeria’s adult population.
In general, a credit system refers to a platform where financial institutions or lenders act as intermediaries in transactions. It provides funds to various economic stakeholders and stimulates activity.
Why is Access to Credit Important?
Access to credit means economic growth for Nigeria. When additional funds are made available to economic stakeholders, economic activity naturally increases which in turn leads to more jobs and better pay. Businesses thrive because increased credit invested in inventory, innovation, human capital and business infrastructure boosts business performance, productivity and eventually, sales.
Most importantly, access to credit for businesses directly increases the standard of living because there is an increase in consumption and buying power that individuals would otherwise not have. By providing the funds needed to finance spending on health care, education, consumer products and services, an effective credit system will improve the quality of life, which is important for income growth and middle-class expansion.
What is Nigeria Doing About this?
Now it’s not all bad news. Nigeria’s credit system is almost non-existent right now, however, it is growing slowly but surely. Our country is starting to put infrastructure, laws and and policies in place that facilitate credit.
One of these policies would be the Getting Credit reforms put in place by the Presidential Enabling Business Environment Council [PEBEC]. The reform now enables SMEs to use movable assets (vehicles, farm equipment, jewellery, machinery) as collateral to get loans from banks and allows borrowers the legal right to access credit data from credit bureaus who provide credit scores for banks and other financial institutions, for them to secure credit and loans.
A National Collateral Registry (NCR) has also been established to support this intended use of movable assets. Data on movable assets in the CAC database will be accessible through the NCR portal to avoid having multiple registries. The NCR is the sole registry where lenders can search for transactions on movable assets, in line with global standards.
What Does this All Mean?
As a person who runs a business in Nigeria, I think it means that Nigerian MSMEs can be optimistic about their future. We should have concerns about the depreciation of our currency, stability and the execution potential of the outlined credit projects, but there is a basis for optimism about the future of business in Nigeria.
If these Getting Credit Reforms and NCR are anything to go by, and there are strong indications that they are, financial institutions are likely to be more willing to lend to smaller-scale businesses. And that is a win we desperately need.
Editor’s Note: This article was originally published in The Spark Magazine. Find the magazine here to read other articles.
Odunayo Eweniyi is the co-founder & Chief Operations Officer, PiggyVest. She has 5 years’ experience in Business Analysis and Operations and is a First-Class graduate of Computer Engineering, Covenant University, Nigeria. She was named one of Forbes Africa 30 under 30 Technology in 2019 and one of 30 Quartz Africa Innovators 2019. She sits on the advisory board of TrainFuture, an Education Technology company based in Switzerland. She was also one of the featured speakers at the World Bank-IMF Annual Meeting in 2019.