How dearth of data constitutes a stumbling block to credit access in Nigeria

Joy Agwunobi

In Nigeria, where economic opportunities are often shaped by financial accessibility, millions of citizens face the daunting challenge of obtaining formal credit. For many, the dream of financial security and upward mobility is hindered by a single roadblock: limited access to credit facilities.

Despite the resilience and aspirations of salary earners, entrepreneurs, and traders, the inability to secure loans at the right time continues to impede progress, especially amid economic challenges, reduced purchasing power, and the rising cost of living.

As one of Africa’s largest economies, Nigeria suffers from low consumer credit penetration, a situation that has left a significant portion of the population relying on informal and often exploitative lending systems. The lack of a well-structured and inclusive financial system has compounded the issue, with factors such as data fragmentation, institutional distrust, and rigid banking regulations making it difficult for middle- and lower-income earners to access credit through conventional means.

According to a report by Stears, Nigeria’s total addressable market (TAM) for consumer lending stood at $2.7 billion by the end of 2023. The report further highlighted that the scarcity of rigorous up-to-date estimates of credit market size creates problems for commercial banks, digital lenders, microfinance institutions and future investors by effectively making them “market blind” and unable to estimate Nigeria’s actual consumer credit market size.

Despite Nigeria’s population exceeding 200 million, credit penetration remains alarmingly low. Financial experts stress that credit serves as a crucial pillar for economic development in both emerging and advanced economies. According to a survey by Enhancing Financial Innovation & Access (EFInA), approximately 32 per cent of Nigerian adults, roughly 39 million people—rely on informal credit sources, further underscoring the severity of the country’s lending crisis. Nigeria’s low credit penetration ranks among the lowest globally, and experts point to the absence of a centralised and accessible data system as a key factor driving this problem.

Speaking on the subject in a televised interview, Tunde Balogun, founder and CEO of SmallSmall, identified the lack of accessible and consolidated data as a major impediment to credit penetration in Nigeria, he noted that despite Nigeria’s large population of over 200 million people, access to credit remains significantly low.

He emphasised that credit is a fundamental pillar for economic growth in both developing and developed nations, stating, “A nation cannot progress without access to credit. We’ve been discussing the development of the Nigerian economy and the empowerment of Nigerians to transition from lower-income to middle-class status, but none of this can be achieved without access to credit.”

Balogun highlighted distrust and data fragmentation as key obstacles hindering credit accessibility. He pointed out that while data exists, it remains isolated across different entities, making consolidation difficult. “Tech companies have their data, banks have theirs, and other corporations also keep their data separately. The challenge is that each entity fears that if they pool their data, another corporation might exploit it to gain access to their customers. This has created a significant trust gap,” he explained.

He advocated for a centralised system to consolidate purchasing history and credit access, according to him, “One of the only ways to resolve this distrust is to establish a centralised system for data consolidation. Such a system would allow for comprehensive credit assessments and improve access to financial services.”

Balogun stressed the need for government-led initiatives to improve access to credit, stating that while some tech companies have made progress in this area over the years, significant challenges remain. He pointed out that one of the biggest barriers to credit accessibility is data availability.

Balogun further highlighted the challenges surrounding credit accessibility in Nigeria, particularly for the middle and lower class. He explained that banks are generally more inclined to lend to the upper class due to the availability of substantial collaterals. However, the same level of access is not extended to the middle and lower classes, as they often lack the collateral that financial institutions require to approve loans.

“When it comes to credit, there are two types—direct and indirect credit. We believe that the middle and lower class should primarily have access to indirect credit, except in cases where cash credit is essential for business operations or SMEs,” he stated.

He further clarified that direct credit typically involves cash disbursement, which can be problematic. “The challenge with cash-based credit is that once people receive the money, other pressing financial needs often arise, diverting the funds from their original purpose. This is why we advocate for sustainable and indirect credit—where individuals can directly access the goods and services they need, rather than receiving cash.”

Balogun pointed out that there are already platforms facilitating such credit models. “For instance, we started with Rent SmallSmall, which enables individuals to pay rent in monthly instalments. We have since expanded into the e-commerce space with Fair App, which allows people to purchase gadgets, laptops, and home appliances while spreading payments over time. We have also onboarded vendors across various categories to make this service more accessible,” he explained.

On the growing adoption of the “Buy Now, Pay Later” (BNPL) model in Nigeria, Balogun acknowledged its rising popularity. He noted that more platforms and businesses are making this option accessible to Nigerians, extending beyond just e-commerce. However, he pointed out that despite the increasing adoption, penetration remains limited due to economic challenges such as rising living costs and declining purchasing power.

Regarding concerns about credit default, Balogun called for a centralised solution to enhance credit accessibility in Nigeria. He emphasised the need for a robust system that consolidates credit histories across various financial touchpoints, similar to models adopted in developed countries.

“In countries with robust credit systems like the United States, credit history is tracked across multiple touchpoints. For example, rental payments were not initially included in credit history assessments, but Esusu, a company co-founded by a Nigerian, changed that. Esusu has partnered with property management firms to integrate rental history into Americans’ credit reports, providing a more comprehensive financial profile,” he explained.

Balogun highlighted the need for a similar initiative in Nigeria, stressing that such a system should not be controlled by a single entity due to the sensitivity of financial data and issues of public trust.

“In Nigeria, we need a centralised credit solution, but it cannot be driven by a single individual due to concerns over data security and distrust. Even with government involvement, there is still a level of distrust. However, there are signs of growing confidence in certain federal initiatives, there is growing confidence in certain federal initiatives. Despite the rising cost of living and declining purchasing power, we believe the country is on a trajectory toward improvement,” he noted.

He pointed out that some existing frameworks, such as Credicorp and the Nigerian Education Loan Fund (NELFUND), are steps in the right direction. However, a more comprehensive and inclusive credit system is still needed.

“I believe Credicorp is well-positioned to take on this role. By its very nature, it is meant to serve the entire Nigerian society rather than just a single institution. If properly structured, it could provide the centralised credit system that Nigeria urgently needs,” Balogun added.

Balogun stressed the need for further efforts to make essential products and services more accessible to Nigerians. He reiterated that platforms like SmallSmall are working to bridge this gap by bringing essential goods closer to consumers through flexible payment structures.

In a related development, the Nigerian Consumer Credit Corporation (CREDICORP) also revealed the significant gap in Nigeria’s credit system, noting that only three per cent of Nigerian workers accessed formal consumer credit in the past year.

Uzoma Nwagba, CEO of CREDICORP, made this known at World Consumer Rights Day stating: “For consumer credit to make a real difference in the economy, it must reach 50 percent of the country’s GDP, amounting to N176 trillion. At present, the country falls short, with a credit gap of N141.3 trillion.”

He stated that the lack of consumer credit access is not due to insufficient funds but rather a breakdown of trust in the system. “Large sums already circulate within the financial sector and could be mobilised, yet millions remain unable to access credit due to systemic inefficiencies.”

Nwagba pointed out this challenge goes beyond policy and requires innovation. He explained that consumer credit must be made widely accessible through creative approaches, which in turn will attract the necessary regulations, infrastructure, and economic frameworks to sustain it.

According to him, consumer credit serves two important functions. First, it is a product that must be structured like any other financial service to reach those who are currently excluded. He noted that innovative solutions such as mobile nano-loans, instant credit approvals at purchase points, “buy now, pay later” options and digitised savings group records could expand credit access. He also stated that specially designed loan products for women and youth would ensure broader financial inclusion.

Secondly, consumer credit plays a key role in unlocking access to essential goods and services. He explained that credit enables people to afford solar home systems, digital devices, vehicles, improved housing, and household furniture, which in turn supports job creation and economic growth. He noted that smartphone penetration in Nigeria is still below 30 per cent, but increased access to credit would allow more people to acquire digital devices and participate in the modern economy.

To bridge the N141.3 trillion credit gap, Nwagba stated that CREDICORP is working to build a strong credit infrastructure that will make access to loans easier, safer, and more reliable.