With CRC, FICO Score partnership, consumer can access loans anytime

* The essence is to promote, improve consumer lending in Nigeria

Getting funding to power small-scale business has always been a barrier for a driven loan population like Nigeria. This is about to change, as CRC Credit Bureau, led by its managing director, Tunde Popoola, recently partnered with a U.S.-based FICO Score to boost consumer lending in Nigeria. He speaks on this partnership with DANIEL ANAZIA.

As an expert, how would you assess the consumer lending landscape in Nigeria overtime?
Since the advent of credit bureaus, some Nigerian banks have made attempts to grow their consumers’ loans portfolios. There have been introduction of consumer loan products such as credit card, auto or vehicle loans and mortgage loans. Some banks have also established dedicated desks to serve the SMEs. We have witnessed some improvements in the number of beneficiaries of consumer loans as well as the total value of loans to the consumer segment of their loan portfolios.

However, formal lending to consumers is still relatively very low in Nigeria. Nigeria has 22 commercial banks, over 900 microfinance banks, about 100 primary mortgage banks apart from other non-bank financial institutions, and yet, Nigeria has not experienced the kind of volume of consumer credit you will expect. The total value of loans to consumers by commercial banks is just about ten percent of their total loans. This is very low compared with over 40 per cent in South Africa and about 33 per cent in Brazil. Even though we have experienced growth in value of total loans over time, substantial value of loans still go to large corporates and high net worth individuals. About 30 per cent of total loans from our banks still go to the oil and gas sector. Less than 5 million bankable Nigerians are enjoying credit facilities at any point in time in Nigeria from commercial banks. When you situate this against the bankable Nigerians, you will realise that we have not even scratched the surface.

How can these identified challenges facing consumer lending be tackled? 
Most of the issues that pose as hindrances to consumer lending in Nigeria are historical, attitudinal and refusal to embrace new lending business models by our banks. One, there has always been the challenge of information asymmetry leading to inability to have proper knowledge of the consumer borrowers. This leads to difficulty in tracing and tracking customers by identity and by location. Secondly, consumer loan transactions are too small and regarded as expensive by the banks because of what is involved in underwriting, managing, tracking and collecting small loans. Very closely associated with this is the adoption of wrong lending model. You cannot use corporate lending model and mindset to go into consumer lending. Consumer lending requires special lending skills, technology and mindset. A major model of bank lending in Nigeria is personal banking and relationship management. This adopts a system of processing individual customer application and applying personal judgment based on personal knowledge of the customer. There is no bank that can grant loans to millions of customers with this model and mindset.

Economic recession and people’s ability to repay loans
It was an unfortunate development, which has adversely affected the repayment ability and capacity of borrowers, both corporate and consumer borrowers. During a recession, people lose jobs, disposable income is compromised because of inflation and interest and foreign exchange rates rise, making it difficult to service on-going obligations, thereby precipitating default. A number of white-collar employees have lost their jobs and most of them, whom the banks had granted loans on the strength of their employment, are now unable to service and repay those loans. Quite a lot of other businesses have also closed shops and their employees are in the labour market. About 30 per cent of bank loans in Nigeria were made to the oil and gas sector. We all are witness to what is going on in the oil and gas industry.

What is this CRC FICO SCORE recently launched is all about?
The Fair Isaac Corporation (FICO) pioneered analytic solutions such as credit scoring that have made credit more widely available. Founded in 1956 in the United States, FICO has over 50 years history of data and analytics experience. CRC Credit Bureau is launching FICO Scores, which is our latest product to give opportunity information to lenders in Nigeria. The FICO Scores is meant to help banks and other retailers to be able to appropriately dimension the risk on borrowers who are basically individuals. FICO Scores will know the risk level of every borrower and able to dimension whether it is good, excellent, average or bad. And with that, you can now have dimension of relationship you want to have with such an individual. FICO Scores is introduced by FICO Corporation of United States and happens to be the number one Score solution provider in the world. The company operates in about 90 countries in the world and release over 100 billion scores every year. Once this is introduced we believe it will change the face of consumer lending in Nigeria, it will give opportunity for financial inclusion and also give opportunity to private individuals who don’t have opportunity to borrow and also to lenders to give loans to people who have credit worthy based on the information they will get from FICO.

But this Fico Score alien to Nigeria credit bureau?
Yes. But is a number one score in the world. The credit score is a three-digit number that is generated from information in a credit report to assess the creditworthiness of loan applicants. Examples of globally recognized credit scores are FICO Score, Vantage Score 3.0, and scores from Experian, Equifax and TransUnion. For instance, CRC FICO Score ranges from 300 to 850 with 300 being the lowest score and 850 the highest. The lower a credit score is, the riskier it becomes for the individual to default when granted credit.

But FICO Score looks like duplication of what CRC Credit Bureau stands for?
What CRC Credit Bureau is doing before is that we have reports of credit history, pattern of behaviour of the person (the borrower) in the last two and three years. With introduction of FICO, everything has now been aggregated into figures. So with three digits, you can get everything. Again, in arriving at scores you can get all the information of the credit history. With the scores, most lenders don’t need the reports anymore because the FICO Scores is sufficient enough to determine that. It makes the job easier, democratizes access to credit and also depersonalized credit rates.

What are the Parameters of the CRC FICO Score and does it supports the lending process?
CRC FICO Scores are calculated from data in the credit report using five parameters with different weights as shown in the box below. Credit scores consider both positive and negative information. For example, late payments will lower your CRC FICO Score while a good track record of making payments on time will raise the score. Also, the Scores are delivered almost instantaneously, ensuring that lenders speed up loan approvals and increase customer base. Lending in Nigeria today is evolving rapidly which has necessitated market share to be highly dependent on turn-around time. Again, CRC FICO Score offers more objectivity in credit decisions. You can focus only on facts related to credit risk rather than personal feelings. Sentiments like ethnicity, gender, and religion are not considered in credit scoring. In addition, one-off mistakes made by loan applicants are not over-emphasized in the scores thus ensuring that more people with long-term credibility get credits.