Credit bureaux operators are taking steps to ensure that more borrowers and bank customers are acquainted with their credit status as part of their commitment to the Central Bank of Nigeria’s (CBN’s) move to ensure that the real sector has more access to loans. CRC Credit Bureau Limited Managing Director/CEO, Tunde Popoola, speaks on these issues among others in this chat with COLLINS NWEZE.
You are aware of Central Bank of Nigeria’s planned restriction on banks from investing in government securities. We also found out that Nigeria has issued a 30-year-bond. How will this reflect on the industry?
This is a very good development, the reasons are many and that is why when government came up with the 30-year-bond, for the first time, it was oversubscribed. Government wanted to raise N20billion, and they ended up raising N80billion for the 30-year-bond.
So, that gives the government opportunity to have long-term funding for infrastructure. They can do rail and roads because these are infrastructure that you need long-term funding for without necessarily waiting for tax to do that. Secondly, it frees the banks from being crowded with requests for 30 -day or 60-day treasury bills.
Nigerian banks do not have long-term funds like that. So, it is difficult for them to put their own funds in 30-year-bond. The funds that take care of that are pension funds, asset management companies and some other institutions established to provide long-term funding. So, if government continues to go in that way, giving money to government as loans may no longer be attractive. They need to look inwards and develop products for private sector to borrow.
That will raise the violability of loans to the private sector. There is no outlet for them to dump money on government and have risk-free assets in tier books. They do not need to create risky assets for the private sector, which is going to be in form of loans for these sectors you are talking about.
The last two to three years, T-Bills rate was over the roof. The banks are there to create money for the shareholders. But with this kind of decision by the government, I think they should go more in that direction, and aggressively address the infrastructural challenge that we have.
Commercial banks are supposed to be lending short and not investing in government assets.
What is your view on the CBN’s new policy plan?
The current Central Bank Governor is development-oriented. He is much more committed to how to get commercial banks lend to the private sector.
On its own, the CBN is taking on the role of the lender directly by having many intervention funds for cotton, agriculture, etc. And that’s the direction the governor wants the banks to go. If the banks are not going there, he needs to give them incentives that will motivate them to those sectors of the economy. He should discourage them through policies from lending to government. If it becomes unattractive to lend to government, then you have to find your way to lend to the private sector, which is your focus.
How are people informed about your operations?
We are enlightening people on the need for them to have their own credit report, whether as individuals or corporates. We want to encourage people to have that, and not when they need credit before they seek for the credit report.
We also have brought down the price, with which they get the report. Before now, it was N5,250 and now it is N2,499 to get your credit report. Beyond that, we have other credit monitoring products. We have also made it easy for banks to track the performance of loans they are giving out through our portfolio products.
There are products for customer identification, that is the Know Your Customer, and product that enables you to do cheque verification among others.
What role do you think data can play in lending more to the economy?
Banks are relying on data supplied by credit bureau operators to decide who gets a loan and at what rate.
Operators had deployed data mining tools and products that would enable them profile bank customers or help banks profile customers to determine if they can borrow.
Historically, banks can look at your transactions and collect information from credit bureau operators, which they can put together and look for other additional information. They may have to generate information that will enable them know whether you are credible to have loans, and what kind of loans, and how much you will be able to cope with, based on the data that they have. Then of course, based on the credit score they are already familiar with, determines the rate at which the customer can access such loans.
Should banks send emails to customers asking them to come and borow?
Email notification from banks to customers on availability of loans were products of well-thought out research and data mining on customers’ accounts. They are not mistakingly sent emails. You will discover that the amount they tell you that you can have access to will be different from what they give someone else. And so, because their risk profiles are different, they have been able to do that effectively, leveraging availability of data. I advise customers that have received such emails to approach the bank for the loans, but that is if you need the money.
There was the need to campaign more for people to know that they can access loans. Many banks are doing a lot to get customers to borrow. If a bank is not lending, such a bank is also putting its assets at risk. We supply a lot of information to them because they approach us to get information on several thousands of their customers from time to time.There are even banks that are lending to people that are not directly their customers, leveraging data.
It is easy to get loans nowadays if you really have the need for it and if you order your priorities in a way you know you will be able to payback the loans. The danger is that you do not take loans, when you do not need them. We will keep campaigning on that. That is the risk with the rising campaign that people should come and take loans. People should be encouraged to take loans only when they need the such loans.
People need loans to acquire assets to boost their businesses. Secondly, people need loans to get consumer items that will improve the quality of their lives. A typical family needs a refrigerator in the house. That’s like a consumer loan, but it has an impact on the well-being and health of that family. But you do not need to take a loan to buy consumable items because that is consumption.
If I have the opportunity to take a loan as a fashion designer to buy additional sewing machine, that will enhance my ability to deliver on the sewing jobs and meet customers’ needs. It can even be to buy a new equipment that will enable me do better designs. These are the loans that can propel people to do more in their lives. The good thing is that since we now have collateral registry, you can use the same assets to get an additional loan.
How can you reconcile 60 per cent financial inclusion and 10 per cent credit penetration rates in the country?
If you have the opportunity to have an account, then that puts you in a position to qualify to borrow. Now having an account can be through the payment service banks, fintech, commercial bank, microfinance bank etc, once we got that significantly, we can have 80per cent coverage.
Then you will begin to ask how do we give access to credit to this kind of people? Like I said, a lot of FinTech are now beginning to give access to credit, even to non-bank account holders.
Imagine if all the people doing nano loans are all recognised? Things are really coming up, but we need a gestation period of two to three years and review to see what has happened.
Why is credit penetration still low? Does it have to do with rising non-performing loans in the industry or hight interest rate?
It is important for you to borrow only when there is need for you. I think that is one important education campaign we need to always emphasise on.
That’s one of the social responsibility programmes that CRC Credit Bureau has taken up on its own. You borrow to consume and then you will be unable to pay because you have already consumed whatever it is, then you are in problem.
People should borrow for earning assets so that they can become very important economic agents. When you talk of non-performing loans and all that, it is a major issue and it is multi-dimensional. I think the major thing is that if the rate is high, clearly only few people will want to take the loans, and when they do take them, if anything happens to the cash-flow, then the loan ballots and before you know what is happening, they may not be able to repay such loans.
Second one, which is very close to why they may not be able to repay the loans, is the state of the economy.
Yes, we are out of recession, but not all sectors of the economy are doing well.
What sector do you think is driving the growth we now see in the economy?
Do you know that the propellers of the growth that we are seeing now, are around agriculture services? Manufacturing is still struggling and so are some of other sectors. So, people are still finding it difficult in this economy to perform and get profit from their transactions. The third issue has to do with the banks themselves. Some of them still do credit concentration in few sectors, around individuals or companies as the case may be.
What is causing the non-performing loans is not the consumer loans or loans to SMEs. When one customer with N50billion loan defaults, that creates a significant impact on the balance sheet of the bank on the rate of non-performing loans, than when 1,000 or 3,000 consumer loans of N100,000 or N200,000 default. That will still be insignificant. That is the reason we keep saying that banks need to open up themselves to loans to SMEs. By that, you will diversify your risk.
We know the cost of underwriting will be high, even the cost of such loans will be high, but that will be on the short run. In the long run when your system adjust to all of that. All over the world, except in sub-Saharan Africa, consumer loans and mortgage loans are the products that give financial institutions the chunk of revenue that they have and enable them to declare good profits.
That business model still needs to change for some banks. Some banks have started learning the ropes. Until that is done, we cannot say the issue of non-performing loans will be a thing of past.
Big companies in oil and gas are still susceptible to price volatility and will keep on impacting the level of non-performing loans.
We have over 40 million Micro Small and Medium Enterprises (MSMEs) in the country. If those MSMEs employ only themselves, that’s 40 million jobs. When you look at even the small, they imply an average of two, three and four people. And so, we need to catalyse that sector of the economy.
People can start their business on their own, in one two to three years they can employ more people. How many big companies do we have in this country? How many big companies employ up to 100 people in Nigeria? So, you have to find ways to stimulate SMEs, which is the engine of growth. These companies have their own impact and help stimulate the economy. They need each other. MSMEs are the fillers. An MTN, for instance, needs distributors, they need people to rent masts, they need people to manage masts, and this will be done by the SMEs. They even need the IT people that will write quotes, and develop new products. How many people will MTN on their own employ. But you know there are so many things that will come up that the SMEs will be the ones to take over the responsibilities. That’s the linkage. That’s while both of them are very important to the economy.
Do you think the banks can fund both sectors effectively? Where do you think the banks should go first, is it where the risk is lower or where the profit is higher?
They have to balance the equation. When you take on big transactions, you have high risk that you are running because a non-performing loan for one of those transactions can put you in trouble and cause problem of capital adequacy for you.
But when you lend to thousands of SMEs, you are de-risking your portfolio because all of them cannot go bad at the same time. All those sectors you have left cannot be bad at the same time. So, it a model to de-risk by also lending to consumers and lending to SMEs.
Basically, when you look at migration today, for commercial banks, that’s where they are all going. All of them now have SMEs desk. The impact, you may not see immediately, but it will become manifest in a very medium term.
How would you see the credit bureau industry in Nigeria, compared with their counterparts in other developed economies?
Credit bureaux performance is a product of the environment where they operate. So, because you are servicing an economy, by being in an economy, the economy dictates the kind of products and services you have. If we are talking about the Nigerian economy, the type of loan products that we have are still very elementary ones-overdraft, term loans and consumer loans.
Those are still what we have. And so, credit bureaux will develop products that will enable you get information to lend in that regard. If you are talking of sophisticated economies, where you have mortgages, and other sophisticated products. Those credit bureaux will develop products that will serve the market.
All we need to do is what we are already doing. We want banks to lend to SMEs and so we have come up with products-credit reporting and credit scores.
Why are we here is to provide information to customers. How can we help them monitor the loans they have granted? Also, how can we help them monitor what is going on? Even individual borrowers, will have a credit check on themselves. These are focus areas for CRC. We have developed about 13 products to provide these services.