Improving access to credit will increase productivity – Popoola

Incorporated in 2006, CRC Credit Bureau was licensed and commenced live operations in 2009. Ten years after getting into the fray, its Managing Director, Tunde Popoola, told OLAWUNMI OJO that government could ease access to credit in the country in order to empower Nigerians and enhance the growth of micro, small and medium enterprises (MSMEs), among other issues.

In organised societies, access to credit is critical to national economic growth and prosperity of individuals. Since you began operation as a credit bureau, what have you identified as impediments to access to credit in the country?
There is just one major bottleneck that we have had on this journey of empowering Nigerians. It is a limited means of identification. Nigeria needs a unique identifier; every Nigerian needs a number by which we can identify him or her. If we all agree that the future is about data and that with it a lot can be done to migrate the people from poverty to prosperity, then we need to take maximum advantage of data and have a unique identifier for everybody.

A unique identifier is not about holding an identity card; it is about having a unique number such that, from a database we can see who you are, where you live and what you do. If we have that, this economy can move faster and issues around financial inclusion and poverty can be completely eradicated.

This is what has changed the fortunes of India and China. In 1980, China’s poverty rate was 75 per cent and India was 65 per cent. At that time, Nigeria’s poverty rate was only 28 per cent. Today, we have reversed the case.

In China and India, they have less than two per cent of their population now in poverty. And each of those countries has over a billion people. Now, Nigeria has moved from 28 to about 60 per cent in terms of poverty rate, yet more people are slipping into poverty because we are unable to provide the basic needs of life for them. We are unable to empower them with economic access. 

So, the unique identification is what most countries have used to put assets at the disposal of their people. Unless we have it, it is going to be very difficult for us to move forward. Banks, retailers, and whoever provides services, are not going to give credit to people they don’t know. With the advent of the credit bureau, the situation has been improving. But we can do more; we can move faster if we have a unique means of identification. That is one major task the government must achieve.

Is that not what the government set out to do through the National Identity Management Commission (NIMC)?
I will stop short of saying that the government needs to declare a state of emergency in ensuring that everybody is empowered with the identifier. They need to put the infrastructure in place to make sure that, as early and as soon as possible, everybody has that unique identifier. Now, the NIMC has only one thousand places to register about 200 million people in a country as big as Nigeria. We should improve on this. I want the government to accelerate access to where people can register. We have started the journey, but how to move faster should be the concern now.

Assessing where we are as a nation, would you say access to credit is improving?
Nigeria moved to the sixth position in the world in the ease of access to credit in the 2016 – 2017 cycle. And CRC clearly played a role in that, which was one of the reasons we were given an award at some time. What role did we play? First, we put up a credit infrastructure that can give credit information. Second, we introduced a credit score that is recognised internationally through FICO, an international data analytics and credit score services company.

So, when the World Bank, which is responsible for doing the ranking, realised that Nigeria has transformed the way credit is processed, Nigeria moved to the sixth position in the world. But beyond the paper issue of movement in the ranking, everywhere, people can now have access to credit once you are credible. You can access credit without necessarily having that big collateral or super-rich relative.

Initially, why were banks not lending? It was because they were lending in the dark. You approach a bank for a loan and through what we call haphazard selection, selection based on emotions, not on any profile, you are granted the loan. You then default. In such an instance, the bank officials have made a wrong judgment. There were also incidents of serial defaulters. Someone takes a loan from Bank A and is unable to pay. He goes to Bank B and takes another loan. That is not possible anymore; CRC now has infrastructure through which you can see everything happening, not just on the banking side but also on non-banking transactions like telephone, electricity, buying a ticket on credit and the likes. It is a totally life-changing experience.

Are you satisfied with the level of consumer lending? If not, how can it be deepened?
I am not satisfied. You still cannot go to the mall with your unique number and buy home appliances. You cannot access mortgage loans. For instance, if you still have about 10 to 15 years to spend in service, you should be able to get such a loan. We are yet to get interest rates down to the lowest level that is affordable for people to comfortably take loans. So, we are not there yet.

However, with the infrastructure now in place and tested, people are seeing that it can be relied on. So, how do we get more people to have access to credit, not just for consumer products but also for productive assets that they can use to produce and stimulate their own prosperity? This is the new focus and phase for us. We would be able to beat our chest if we are able to migrate Nigerians to that place where it is easy for people to have better life on two levels – giving them opportunities to earn a living through access to credit to reproduce, and giving them opportunity to be able to consume what they need to consume.

In spite of your activities as a credit bureau, the challenge of loan defaulters is still real. Why so?
In recent times, you will discover that the only bank that is crying of default now is the Asset Management Company of Nigeria (AMCON). These are historical loans that have been there. And they tell you that once they identified 20 people, they know who owes them. So, the incidence of non-performing loans has reduced substantially. This system is not just about profiling customers to make institutions see the credit history and score of individuals. This is also a social institution that is changing the way people react. As an individual or as a company, people are now realising that if they have a bad loan, that is the last one you will have until they settle the outstanding one. So, we see ourselves not just as an economic agent, but also a social institution changing the behaviour of people to honour agreement and obligations.

We have democratised access to credit. More people are having access to credit. In those days, you had 90 to 95 per cent of bank loans concentrated in the hands of a few high-net-worth individuals or big companies. Today, every bank that I know has an SME department, unit or desk, and they are constantly trying to digitalise how to access credit. All these are happening because they now have information that they can use to profile customers. Some are even lending to people who are not their direct customers as long as they have information about them. This is where we are in the country.

The Central Bank of Nigeria (CBN) has increased the deposit to a lending ratio (LDR) of banks to 65 per cent. This should have made a lot of money available as credit. What constraints have kept SMEs and individuals from accessing credit?
The CBN believes that since all infrastructure needed to lend have been provided – licensed credit bureaus, collateral registry through which SMEs can use their available assets as security – banks have no reason not to lend. But it is a step that has just been taken; it is less than six months as we speak. In the fullness of time, we would examine the positives.

Since the CBN did it, there has been astronomical growth in lending from what has been reported so far. We are also receiving a lot more requests on credit information on a lot of people than in the past. So, the directive seems to be working. But is it sustainable? Should we be waiting for the government to flog us before we toe this path? Wouldn’t the banks have seen the value in them combing the market and looking for who is qualified on their own without CBN saying you must lend a certain amount of your deposits to them?

On the other hand, there are a few things that I must say. A lot of SMEs in Nigeria – about 41 million of them – do not have basic things that engender lending. You need to prepare yourself if you want somebody to give his money to you. You need books of account; you need basic infrastructure like an office where we can even see what you are doing. Most of them don’t have these. A lot of them cannot separate the business from the owner. Business money is not different from the owner’s money. So how do you lend to such a person? You give him the money; he puts it in his current account, the next day he has gone to Dubai. How do you deal with that?

The Bank of Industry has been doing a lot to prepare MSMEs and help them to meet all the criteria that the financial institutions want. So, with time we will get there. My message to SMEs is that a business is supposed to be a going concern that will outlive you. That is why a bank will give you money for 10 to 15 years if they know that business will outlive you.

But some experts fear that CBN’s 65% LDR directive may lead us to where we were a few years ago – high level of non-performing loans. Are these fears founded?
Well, yes and no. Yes, in the sense that if the government says that for every N100, N65 must be given as loans and you are only lending N30 now, it means you are forced to go and look for who to give the money to. In doing that, you can make haphazard selections. You can eventually give money to the wrong people in order to meet regulation and that may be the undoing.

But I look at it differently. In the long run, things will even out. You can have an appreciable increase in non-performing loans, but it will then stabilise. There are institutions in place now to check the preponderance of bad loans. In advance countries, nobody talks about high non-performing loans like we do here. That is because your life depends on your credit history and your credit score. It forces you to manage financial affairs with discipline.