Across various economies, including the most advanced, the government and other stakeholders collaborate to establish avenues for individuals and households to access credit through a consumer credit scheme. The intricacies may differ across different climes, given the level of economic development, social infrastructure and technological advancement. However, the end goal is usually the same–to improve the average citizen’s quality of life. 

In simpler terms, a consumer credit scheme is an initiative to ease the cost burden of goods and services on consumers so purchases can be made without immediate payment. In most cases, these payments are spread across a time frame that suits both the seller and buyer, depending on financial strength and income level. A robust credit system which tracks credit history exists in advanced economies such as the United States and the United Kingdom. Unsurprisingly, the same cannot be said for Nigeria.

According to the Nigerian Credit Consumer Credit Corporation, 73 million Nigerians earn income through formal and informal means. Still, 83% have no access to credit and cannot meet emergency and basic needs. This phenomenon underscores the credit gap in Nigeria. 

In fulfilment of his campaign promises, President Tinubu established a consumer credit guarantee scheme in April 2024 after launching the scheme's first phase, which is targeted at enhancing the economic well-being of Nigerians. Presidential spokesperson Ajuri Ngelale disclosed that the scheme facilitates crucial purchases by Nigerians, such as homes, vehicles, education, and healthcare, essential for ongoing stability to pursue their aspirations.  The Credit Corporation, solely owned by the federal government, will facilitate the consumer credit initiative to grant credit access to 50% of the Nigerian workforce by 2030. This initiative underscores the president’s keen interest in consumer credit as a tool to stimulate economic growth and increase industrial output in Nigeria.

It is worth noting that the consumer credit scheme is a laudable initiative, given that credit is easily accessible in advanced economies. Although Nigeria is nowhere near being regarded as an advanced economy, Nigeria’s position in the African continent requires an established credit system to enable citizens to access quality life without upfront payment. 

Notably, CrediCorp has been tasked with establishing a reliable consumer credit infrastructure to aid the ambition of improving the average Nigerian’s access to credit through proper data utilisation. Specifically, the credit corporation is mandated to strengthen Nigeria’s credit reporting systems by ensuring that every commercially active Nigerian has a reliable credit score that serves as personal equity in accessing credit. Furthermore, this would be done in conjunction with various “financial institutions’’, such as “deposit money banks and microfinance banks”, amongst others, to broaden credit availability and infrastructure in the country. According to Uzoma Nwagba, the Managing Director and Chief Executive Officer (CEO) of the consumer credit corporation, CrediCorp plans to support financial institutions with more wholesale capital and improve the volume of lending towards consumer credit up to the tune of ₦180 trillion from the current ₦35 trillion. According to the corporation, this goal could be achieved through support from the ₦100 billion fund allocated for the consumer credit scheme, which is expected to grow further. Moreover, CrediCorp aims to provide credit guarantees to facilitate the consumer credit scheme by sharing lending risk with financial institutions. CrediCorp will also collaborate with the National Identity Management Commission (NIMC) to link Nigerians with credit scoring systems through financial institutions.

Notably, the consumer credit scheme will be open to every economically active Nigerian with a trackable source of income. As of May 15, about 1.6 million Nigerians have applied as potential beneficiaries of the credit scheme. However, CrediCorp plans to implement the consumer credit scheme in phases, starting with federal and state civil servants. According to the corporation, this aims to build trust amongst all stakeholders through a concise assessment by the financial institution each beneficiary currently transacts with. After that, white-collar or formal and informal workers with trackable and steady cash flows can access consumer credit through this scheme before it eventually opens to other potential beneficiaries. Income, cash flow stability, and credit history will determine the maximum amount an individual can borrow.

Crucial Timing

Given the current dynamics of the Nigerian economy— significantly high inflation and slower-than-expected growth—consumer credit is coming on at a crucial time. Nigerians have recently grappled with a high cost of living, with headline inflation hovering around 33.4% as of July 2024. The current economic realities reiterate the cost burden on the average Nigerian emanating from stringent macroeconomic policy implementations by the current administration.

As a result of the skyrocketing price pressures and other economic headwinds, the purchasing power of Nigerians has significantly weakened. According to a recent report by NielsenIQ, the volume of transactions in the Nigerian Fast Moving Consumer Goods (FMCG) industry has declined by 17.4% in 2024, compared to the 4% contraction recorded in 2023 amidst the high inflation confronting the populace. Many households and individuals are unable to meet their “basic needs”, which may not be unconnected with the recent “Hunger Protest” held across various parts of the country.

Meanwhile, Nigeria’s economic growth rate has dwindled and contracted below the historical average in recent years due to various challenges across the economy's oil and non-oil sectors. For the non-oil sector, which constitutes a larger part of the overall GDP, the growth rate has also slowed in recent years owing to issues surrounding low productivity in the real sector of the economy. The figure below shows the historical trend of the annual GDP growth rate, which has tilted to the downside.

With the president’s target of achieving a “$1 trillion worth economy” by 2026, it is believed that the consumer credit scheme is coming at the appropriate time. The scheme is expected to boost domestic demand for goods and services as the people leverage the established credit facility. This will eliminate most Nigerians' “cash and carry” mindset and allow them to make purchases without immediate payment. This will also enhance the growth of local industries, propelling economic expansion and job creation. Although the $1 trillion worth GDP could appear overly ambitious in the short term, the consumer credit scheme will increase the chance of achieving it or, at least, growing the economy further from the current level. Additionally, this will promote financial inclusion and improve the business activities of financial institutions facilitating the scheme.

Potential Gains for Nigerians

• Access to quality life: For most Nigerians, access to goods and services, including the most basic, is often based on outright payment. This outlook stems from the lack of a proper credit system in place for an alternative mode of purchase. However, with the scheme, consumers can meet basic needs without having to pay immediately, easing the financial burden on consumers, who can spread their payments over time. With the credit scheme adequately in place, the quality of life of Nigeria will experience substantial improvement, knowing that those who are not particularly wealthy can access whatever they desire based on their income and pay overtime while enjoying the utility derived.

• Improved business environment: Implementing an effective credit scheme will improve the overall economy through higher demand from consumers who can meet their needs without paying immediately. This practice will stimulate business activities for small and medium-sized businesses that often struggle with sales, which could be due to weak consumer demand amidst high inflation. Therefore, a functioning credit system will foster consumer confidence and, in turn, lead to higher sales for small business owners in Nigeria.

• Alleviation of poverty and hardship: The consumer credit scheme is coming at a time of high consumer prices and weak purchasing power, reflecting the current economic realities. However, the credit scheme will allow consumers to access their needs and improve their standard of living despite the elevated prices, as they can make their payments in instalments without the burden of paying the high cost immediately.  

• Curtailing corruption: As consumers can meet their needs, such as housing, food, education, and healthcare, without making upfront payments, the thirst to get money through uncouth means will gradually decline. As social welfare improves through the positive impacts of the credit scheme, corruption, particularly amongst average Nigerians, should also decrease as needs can be easily met by accessing credit.

It is important to note that the success of the consumer credit scheme will depend on the infrastructure provided by the key stakeholders involved in its implementation. A significant challenge that could confront this initiative is the risk of default. In recent years, most Nigerian banks, particularly the “tier-one banks”, have kept their NPL ratio below the 5% regulatory benchmark. This trend suggests that they can adequately manage credit with specific measures in place. Moreover, CrediCorp has put measures in place to mitigate the risk of default by tracking cash flows and consumers' income through financial institutions. Hence, the first phase starts with civil servants who have steady and trackable cash flows. Essentially, the average Nigerian must be sensitised to the advantage of having a good credit score and history while addressing the common perception of credit as a burden.

Lenders have yet to specify the explicit rate for credit creation for consumers. However, as determined by the financial institutions, this is expected to be competitive and affordable. As the credit corporation continues collaborating with the credit bureau, the central bank, financial institutions, and other stakeholders to strengthen the credit infrastructure, the scheme is expected to progress steadily across phases until it reaches the general public.

References

Cable Newspaper. (2024). Presidency: 40,000 civil servants to receive first tranche of consumer credit. The Cable. https://www.thecable.ng/presidency-40000-civil-servants-to-receive-first-tranche-of-consumer-credit/

Channels TV. (2024, May 14). 1.6m Nigerians submitted applications for consumer credit scheme. Channels Television. https://www.channelstv.com/2024/05/14/1-6m-nigerians-submitted-applications-for-consumer-credit-scheme-uzoma-nwagba/#:~:text=1.6%20million%20Nigerians.-,On%20April%2021%2C%20President%20Bola%20Tinubu%20launched%20the%20first%20phase,received%20so%20far%20as%20overwhelming.

CNN (2024). Violence erupts as Nigerians protest hunger across the nation. https://edition.cnn.com/2024/08/01/africa/nigeria-mass-protests-against-hunger-intl/index.html

Intel Region. (2024). Jubilation as Tinubu launches consumer credit scheme across Nigeria. Intel Region. https://www.intelregion.com/news/jubilation-as-tinubu-launches-consumer-credit-scheme-across-nigeria/

Intel Region. (2024). 7 things to know about Tinubu’s consumer credit scheme for Nigerians. Intel Region. https://www.intelregion.com/news/7-things-to-know-about-tinubus-consumer-credit-scheme-for-nigerians/

Nation Newspaper. (2024). How consumer credit scheme will reflate economy. The Nation. https://thenationonlineng.net/how-consumer-credit-scheme-will-reflate-economy/

National Bureau of Statistics. (2024, July). CPI and inflation report. https://nigerianstat.gov.ng/elibrary/read/1241542

National Bureau of Statistics. (2024, Q1). National gross domestic product. https://nigerianstat.gov.ng/elibrary/read/1241506

Punch Newspaper. (2024). Nigeria needs to get the consumer credit scheme right. Punch. https://punchng.com/nigeria-needs-to-get-consumer-credit-scheme-right/#google_vignette