As the nation awaits the commencement of the Consumer Credit Scheme, an initiative of President Bola Tinubu’s administration, FESTUS OKOROMADU, collates experts’ views on the prospect of the initiative on the Nigerian economy
One critical economic stimulant that financial analysts and economists have hitherto blamed for the slow growth of Nigerian society is the absence of consumer credit facilities.
Some experts have argued that such facilities not only boost consumption and hence encourage production but also strengthen citizens’ behavioural attitude as credit rating or credit scores become an important tool for accessing key national goodies and as well serve as an instrument for crime control among others.
Others also think the scheme will help achieve the 50 percent financial inclusiveness target for 2030.
Thus, the rollout of the Consumers Credit Scheme, spearheaded by the Nigerian Consumer Credit (CREDITCORP), last Wednesday, by President Bola Tinubu, may have come as a relief to many enthusiasts and advocates of consumer empowerment.
Announcing the kick-off of the Scheme, Presidential Spokesman, Ajuri Ngelale said the initiative is aimed at enhancing Nigerians’ capacity to purchase goods and services with ease.
He stated that the programme will serve as “the lifeblood of modern economies, enabling citizens to enhance their quality of life by accessing goods and services upfront, paying responsibly over time.”
Ngelale hinted that the scheme also facilitates crucial purchases, such as homes, vehicles, education, and healthcare, essential for ongoing stability to pursue consumers’ aspirations in the economy.
Speaking to President Tinubu’s desire to use the scheme as a transformational tool for the citizens, Ngelale said, “The President believes every hardworking Nigerian should have access to social mobility, with consumer credit playing a pivotal role in achieving this vision.”
However, some analysts opined that the Nigerian government has always pulled out positive concepts but implementation remains the bane of many of such programmes.
Others express conscious optimism stressing the need to see the delays of the programme in terms of its legal framework and operational system.
“But the implementation framework should be such that it would deliver the desired outcomes. It also has to be inclusive”
Experts’ perspectives
The Founder/Chief Executive Officer, Centre for the Promotion of Private Enterprise, Muda Yusuf, said the introduction of the scheme is a welcome development as it would boost consumer demand.
According to him, one of the major shortcomings of the Nigerian financial system is the absence of consumer credit.
“Where it exists, the conditions are often very difficult to meet,” he stated.
On expected benefits of the scheme, he said, “The resultant enhancement of purchasing power would be beneficial to other sectors of the economy. We need robust consumption capabilities to complement production.”
However, Yusuf has some words of advice for the operators, saying, “But the implementation framework should be such that would deliver the desired outcomes. It also has to be inclusive. The pilot phase will cover the civil servants. It is expected that the next phase will cover other segments of the society.”
Similarly, the Chairman of Tekedia Capital, Ndubuisi Ekekwe, described the scheme as a “very commendable” imitative from President Tinubu’s administration.
“This is a great policy from the government,” he stated.
Additionally, he said the initiative marks a significant step towards enhancing financial inclusion and empowering individuals to achieve their economic aspirations.
“If this works, many good things will happen,” he added.
Expressing optimism as to the possibilities of the initiative acting as the recipe for resolution of the current economic quagmire Nigerians found themselves in, Ekekwe said, “Notice that our economy has not been responding very well to monetary tools like interest rate adjustments. Those tools are largely created by the Western economies with solid consumer credit systems. In Nigeria, we do not have any developed consumer credit system.
“So, when the Central Bank of Nigeria hikes interest rates, we hardly get any reduction in demand since everyone uses cash here, and interest rates have minimal impacts since only very few have access to credits, to be influenced by the prime rates. In other words, the tools which the CBN uses hardly affect consumer spending which needs to be tamed to bring inflation down.
“In reality, rate hikes in Nigeria push the cost of capital high for corporations and producers, and that reduces supply which is actually needed to bring inflation down; corporate credit is relatively more developed than consumer credit in Nigeria. That is why for years, we have not been lucky to tame inflation.”
Ekekwe however emphasized the importance of careful execution to derive the needed benefits.
“So, if this consumer credit system works, good things will happen. The apex bank will have space to breathe with its tools. Good one, Team Nigeria. The key is a great execution; the policy is a good one,” he added.
On his part, Founder/CEO Trade Lenda, Adeshina Adewumi, who is currently playing in the private sector-led credit scheme, says the initiative is good.
“The scheme will help us achieve the target of 50 percent financial inclusion before the end of 2030 for every Nigerian out there,” he said.
According to him, the beauty of the initiative is that “CREDITCORP is not going to be doing this alone; it’s going to be working with the Central Bank of Nigeria, Banks, Fintech and other financial institutions to be able to deepen access to credit for these various stakeholders.”
He noted that the decision to start the first phase with government employees is very essential, insisting this will ensure the security of the initial funds voted to run the scheme as there is a guarantee of repayment.
He applauded the operator’s decision to start with government employees, and then extend to working-class professionals and afterwards they throw it open to every Nigerian.
“I think it is actually the right step in the right direction,” he stated.
According to Adewumi, the scheme will create the acceleration of foreign injection of capital into the Nigerian economy.
As an operator in the industry, he stated that the government can attract foreign investors when the scheme is thrown open for private sector operators to play while the government through CREDITCORP plays the role of a regulator.
According to him, foreign investors understand that lending rates are higher in Nigeria; therefore, with the government coming in to formalize and drive the sector, it boosts investor’s confidence to participate.
“Our rates are better when compared to others, the rates which are visible here in Nigeria are relatively higher, and as a result of competition this will help us get more inflow as well stabilize the rate at which people are able to get credit.
“As we all know today people often get credits are rates as high as 20/30 percent per month, this is what the Federal Competition and Consumer Protection Commission (FCCPC) have also taken steps to moderate and also what this CREDITCORP will help us do, reduce rates and as well reduce all those loan sharks or even chase them out of the market and help consumers to get competitive rates that will help to grow the economy.”
Speaking to the proposition that that CREDITCORP should have been a regulatory agency rather than a player, Adewumi said that may as well be the long-term plans of the government.
“I always believe in decentralization, but while we don’t understand what strategy they will deploy we can project or predict that the government will decentralize the scheme in the long-run.
“The reason is not farfetched, if you look at every policy that has been taken by the Federal Government you will see that they have also given significant power to the states as well as other stakeholders who they believe have more close rapport with the grassroot and that is why, I stated earlier on that the Federal Government is going to be working with banks, fintech and other financial institutions to ensure that this new scheme actually reaches to the end consumer.
“As we all know today, we have FCCPC approved over 232 loan platforms, what that means is today, should the government be working with fintech and other financial institutions we will be able to have the possibility of supporting the economy. Every of these loan platforms have the capacity of supporting over a million people and then help to grow that lack of access to capital gap across the nation.”
In an earlier comment on the scheme, Minister for Budget and Economic Planning, Abubakar Bagudu, noted that N100 billion is included in this year’s budget for the programme
He said, “We put N100 billion funds in the budget to support consumer credit.
“This is important because the manufacturing sector is struggling with two challenges: efficiency of production and finding someone who can buy.
“The introduction and support of consumer credit, we believe, will help in the revival of our manufacturing sector to meet international standards. It is a catalytic fund that is expected to have significant growth.”
The Managing Director, Arthur Steven Asset Management, Olatunde Amolegbe and Managing Director, HighCap Securities, David Adonri, also lauded the scheme.
The experts added that consumer credit can have both positive and negative impacts on the economy.
On the positive side, it can stimulate economic growth by increasing consumer spending. When individuals have access to credit, they are more likely to make purchases, driving demand for goods and services and leading to increased production and job creation.
This, in turn, can boost overall economic activity and contribute to higher levels of economic growth.
Amolegbe noted that the Nigerian economy cannot reach its full potential if it remains a largely informal and cash-based economy.
According to him, the availability of credit means consumers can leverage their incomes in other to buy more, thus indirectly boosting production, capacity utilisation and employment
“It will also have a significant social economic impact as it has the potential to lift many people out of poverty by providing them credit to finance their small businesses and trades,” Amolegbe, a past president of the Chartered Institute of Stockbrokers, said.
He, however, pointed out the need to ensure a proper and workable framework, especially when the scheme becomes accessible to operators in both formal and informal sectors.
“The pitfalls include: how do you properly capture and monitor borrowers to ensure they make good on their commitments in a country dominated by people operating in a largely unstructured and informal environment?
“If we can overcome this hurdle, then the benefits of this scheme will be clear for all to see within a short period,” Amolegbe said.
Adonri said the scheme was in line with the global operating environment, noting that it has the potential to boost the economy if well managed.
“Modern economies run on credit. Therefore, it is a commendable initiative to make consumer credit readily available in Nigeria.
“However, it may aggravate the galloping inflation in Nigeria now. The main economic challenge facing Nigeria comes from the excessive supply gap due to the near collapse of domestic agricultural and industrial production.
“Consumer credit is a potent tool for stimulating consumer pull, especially when an economy is be-labored with unsold inventory,” Adonri said.
He said macroeconomic policy thrust now ought to be focused on the mobilisation of credit to boost local production to close the yawning supply gap, as a condition precedent to support the consumer credit system.
How to participate
As announced by the Presidential spokesman, the first phase of the scheme is exclusively designed to accommodate only civil servants, thus it is generally assumed that slightly above four million Nigerians may benefit from the initial stage.
Available dates show that about 720,000 Nigerians are employed as federal civil servants while another 3,850,000 serve at the state levels.
Interested persons are encouraged to visit CREDITCORP website; www.credicorp.ng to express interest, while the deadline is May 15, 2024.
Complaints
Meanwhile some civil servants who spoke with The Point in Abuja say they have challenges accessing the website others say their agencies were not captioned.
Stanley Okafor, said he could not access the platform, “Civil servants without IPPIS numbers can’t register,” he stated, stressing that not every parastatal uses IPPIS.
He called on the operators to review the situation as they would be forced to miss out of the scheme for no fault of theirs.
On his part, Moshood Olomode, a civil servant working in a federal university, noted that public institutions are not listed on the site.
“By implication we cannot access the facility,” he told our reporter.
An Abuja-based financial analyst, Taiwo Abu says the loan repayment period as it is being planned is too short and will not allow for the proposed benefits to be achieved.
“Modern economies run on credit. Therefore, it is a commendable initiative to make consumer credit readily available in Nigeria”
“We are hearing that the duration of repayment of the facilities to be offered is six months. How do you expect civil servants to cope with that, in short, who does that, you said the loan facility is to enable Nigerians to buy cars and houses, and you want such loans to be paid back in six months? I guess it is a joke. What is the current minimum wage? What is the cost of a car? How do you expect someone who earns say N150, 000 per month, who has a family to take care of, pay bills, who takes out a loan to buy a car to repay within such a time period?
“In the developed society where we are borrowing this idea from the repayment plan of such credit has a long duration of minimum of five years and maybe a maximum of 20 years.”
According to him, while the idea of CREDITCORP is a welcome development, the immediate challenges the Nigerian masses have to deal with for now are the high cost of food items and cost of transportation.
“The biggest problem in food production right now is insecurity. It’s the reason food inflation is tower-high. The government needs to address this first so as to reduce inflation and the way to go is ensure that stakeholders along the food value chain have access to this credit which will enable them to increase output.
“While it is good to support consumption with this kind of credit scheme, Nigeria must think of how to boost production and in turn export so as to strengthen the naira which is now a serious concern.”
He submitted that his major concern is the implementation of the policy.
“Nigeria is good at crafting policies but very poor at implementation,” he stated.
