Hugely underbanked Nigeria dampens Tinubu’s credit lifeline

President Bola Tinubu’s administration is set to launch the first phase of its Consumer Credit Scheme on April 21, a flagship programme aimed at extending credit facilities to working Nigerians and potentially unlocking greater economic participation.

The government has lauded consumer credit as a vital tool for improving living standards, enabling the acquisition of goods and services through manageable repayment plans.

However, this ambitious initiative arrives at a critical juncture for Nigeria’s financial system, which continues to struggle with deep-seated challenges in broadening financial inclusion. Despite stated progress, millions of citizens and small businesses remain excluded from essential financial services, most notably access to credit, a fundamental driver of economic activity.

Industry experts warn that the government’s promise to alleviate this situation through the Consumer Credit Scheme may struggle to achieve its desired impact amid persistent structural weaknesses. These include sluggish identity enrollment processes, which hinder the verification necessary for credit extension, as well as the enduring issue of cash scarcity, particularly in underserved areas where informal economic activity thrives.

Furthermore, deep-seated systemic barriers, ranging from inadequate credit information infrastructure to concerns about fraud and the overall trustworthiness of the financial system, continue to stifle the extension of credit, especially to micro, small, and medium-sized enterprises (MSMEs). These businesses, crucial for job creation and economic growth, often lack the collateral and formal documentation required by traditional lenders.

According to President Tinubu, the initial phase of the Consumer Credit Scheme will focus on civil service members, with plans for eventual expansion to the wider public. While the government emphasises the pivotal role of consumer credit in modern economies, the success of this initiative will be heavily dependent on addressing the underlying issues that have long hampered financial inclusion in Nigeria.

Concerns remain that without significant improvements in identity infrastructure, agent network reliability, and overall trust in the financial system, the Consumer Credit Scheme may only reach a limited segment of the population, potentially exacerbating existing inequalities rather than fostering broad-based financial inclusion.

According to analysts, the ability of the government to effectively tackle these systemic challenges will be crucial in determining whether this latest effort can truly unlock credit access and deepen Nigeria’s economic infrastructure.

Uzoma Nwagba, chief executive officer of CREDICORP, in his assertion on the development, pointed out that Nigeria requires an estimated N180 trillion circulating within its financial system to establish a consumer credit economy comparable to that of South Africa.

Speaking in a recent television  interview, Nwagba highlighted the stunted nature of Nigeria’s credit ecosystem, attributing it primarily to inadequate infrastructure, a lack of trust between lenders and borrowers, and limited credit visibility for the majority of the population.

“For us to have consumer credit that feels like it is in South Africa, where about 50% of the population can easily go somewhere and buy a car or get a laptop and pay over time, we need about N180 trillion circulating in the financial system, funding consumer credit,” Nwagba stated.

While acknowledging the fiscal constraints preventing the federal government from directly funding credit at such a massive scale, which he cautioned could lead to a massive welfare socialist state, Nwagba emphasised the government’s crucial catalytic role in dismantling systemic barriers that currently hinder financial institutions from taking the lead in credit provision.

A prominent obstacle identified by Nwagba is the lack of comprehensive credit profiles for Nigerian citizens and the underperformance of the nation’s credit bureaus.

“As of today, just about 10% of Nigerians have their data in a credit bureau, and even at that, the data is often incomplete,” he noted, underscoring the limited visibility lenders have into potential borrowers’ financial behaviour.

“When banks or microfinance institutions can’t fully understand a customer’s credit behavior, they simply can’t trust them, and that’s why it’s hard for even middle-class Nigerians to walk into a bank and get a loan for something like a car or laptop,” Nwagba added, illustrating the tangible impact of this data deficit on credit access.

Improving Nigeria’s credit infrastructure is therefore a top priority for CREDICORP, although Nwagba cautioned that this will be a long-term endeavour. He noted that rather than directly disbursing consumer loans, CREDICORP’s strategy centres on empowering financial institutions to lend with greater confidence and at more affordable rates.

Nwagba readily admitted that CREDICORP’s own resources are insufficient to meet the nation’s credit demands, pointing to its initial budget of N100 billion last year and a similar allocation for 2025, a figure dwarfed by the estimated N180 trillion needed for a South Africa-scale credit economy.

Sola Bickersteth, executive director of Financial Inclusion Centres (FIC) at Professionals Network PLC, also highlighted the urgent need for actionable strategies to overcome these hurdles.

Bickersteth, in his analysis during a recent television interview monitored by Business a.m., underscored a fundamental disconnect between headline figures on account ownership and the reality of true financial inclusion, which encompasses a far broader range of services beyond basic transactions.

“In Nigeria, we largely speak about transactions, which you can simplify as having a bank account,” Bickersteth noted. “But there is a lot of talk about 65% of Nigerians having a bank account, and that is somehow extended to financial inclusion, which is not the complete picture of the financial space as we know it,”  he added.

The financial analyst  pointed to the reality that only three percent of small businesses in Nigeria currently have access to formal credit, a fundamental constraint on economic growth.

Bickersteth contrasted this with more developed economies where access to credit, often measured by mortgage penetration (reaching 60% in some countries), serves as a bedrock for other financial services. He also highlighted the potential of e-commerce as a measure of small business financial integration, a metric where Nigeria lags significantly.

According to him, the government’s current focus on expanding access to credit for small businesses, aiming to increase the current three per cent to 70 per cent, underscores the scale of the challenge.

A key impediment to progress, according to Bickersteth, is the lack of a robust and universally accessible identity verification system. While Nigeria has made strides in issuing National Identity Numbers (NIN), with approximately 130 million issued to date – a significant improvement from less than 10 million five years ago – universal coverage remains some years away.

The persistent issue of cash scarcity, particularly impacting the widespread network of Point of Sale (POS) agents crucial for financial inclusion in underserved areas, also came under scrutiny. Bickersteth acknowledged the perception of some agents colluding with bank branches to secure cash, attributing it not to a systemic failure but rather a consequence of the system’s growing reach.

Bickersteth  noted that with 2.4 million POS devices in circulation and around one million agents, isolated instances of opportunistic behaviour are inevitable, though he acknowledged that there are ongoing efforts to formalise cash access for certified agents to mitigate these issues.

Furthermore, Bickersteth addressed concerns around fraud and illegal activities within Nigeria’s evolving digital financial system. He argued that while the shift to online transactions has changed the landscape of crime, the underlying issue of individuals attempting to exploit the system remains a constant.

He highlighted the importance of continuous monitoring and the implementation of robust security measures, pointing to initiatives like the Nigeria Inter-Bank Settlement System (NIBSS)’s enhanced fraud reporting platform.

The role of government in fostering an enabling environment for financial innovation was also a key point, being addressed.  Bickersteth stressed that the private sector’s ability to drive financial inclusion is heavily reliant on the government providing the necessary infrastructure and regulatory framework. He cited the example of fintech companies developing qualified limit accounts for small businesses, highlighting the potential for such innovations when supported by appropriate licensing and regulatory clarity.