Tinubu’s low-interest consumer credit scheme threatens existence of predatory loan apps By Dada Olusegun

One of the major campaign promises of President Bola Tinubu before the 2023 presidential election was the creation of a consumer credit scheme to give working Nigerians access to credit to pay for goods and services that ordinarily, they would not afford to purchase at once.

The consumer credit scheme was therefore intended as an innovative programme that would save beneficiaries the headache of having to pay a lump sum at once from their pockets for things like housing, cars, appliances, furniture, education etc.

In December 2023, President Bola Tinubu inaugurated a committee to develop the framework for the consumer credit scheme.

In April 2024 the President approved the take-off of the first phase of the consumer credit scheme in fulfilment of his campaign promise and established the Nigeria Consumer Credit Corporation (CREDICORP) to oversee the scheme. CREDICORP was given the mandate to remove structural, market and policy barriers, and accelerate access to consumer credit to 50% of all working Nigerians, by 2030. The President also approved a seed funding of N100 billion for the scheme.

CREDICORP opened an application portal for Nigerians to apply for consumer credit in April.

In the first phase, CREDICORP restricted the applications to federal and state civil servants, because of the ease of getting accurate employment data of these civil servants to guarantee the ability to repay the credit.

Within three weeks of opening the portal, over 1.6 million Nigerians applied for consumer credit, submitting their income information and what they needed the credit for.

The credit corporation over the next few months sorted the applications and few days ago began disbursement of credit to the first round of beneficiaries, all of whom are verified civil servants. 500,000 civil servants are expected to benefit from the consumer credit scheme in the next year with monthly interest at a single digit rate.

So far, CREDICORP has disbursed a total of N3.5 billion to 10,942 benefitting civil servants with a breakdown showing that 4786 of the beneficiaries are federal or state teachers, 2831 beneficiaries are civil servants in federal and state MDAs, 1,307 beneficiaries are medical doctors in federal and state hospitals, 1264 beneficiaries are in the police or the paramilitary agencies while a total of 753 of these beneficiaries are from specialised services such as the judiciary, EFCC, ICPC, environmental workers and traffic authorities.

CREDICORP’S CONSUMER CREDIT VS EXISTING LOAN APPS The entrance of CREDICORP into the consumer credit ecosystem in Nigeria is both game-changing and potentially disruptive in a positive way.

As of May 2024, 284 loan app companies were approved by the Federal Competition and Consumer Protection Commission (FCCPC) and the Central Bank of Nigeria (CBN) to operate in Nigeria.

However, most of these digital money lenders are exploiting the desperation of low-income earners for access to easy credit to sort out short-term emergencies or financial obligations.

The majority of loan apps in Nigeria offer predatory loans with prohibitive interest rates and other manipulative practices. Today, many loan apps in Nigeria charge MONTHLY interest rates of around 33%.

If you annualise the interest rates you will be getting a whooping interest rate of over 300%! For example, if you get a loan of N100,000 from a loan app such as FairMoney, in 30 days you are expected to repay N133,000 which means an interest of N33,000 on a loan of N100,000 in just a month.

If you spread your repayment duration to one year (12 months), at the end of the one year, the total amount you are expected to pay back to FairMoney is N409,362.52. This translates to an annual interest of N309,362.52 on a principal sum of just N100,000 – a 309.36% interest!

To understand how exorbitant this rate is, the official bank interest rate (usually derived from the CBN rate) as of today is 27.25% per annum. This means ordinarily if you obtain a loan of N100,000 from a bank to repay in one year, your total interest for the year would be around N27,250. So, at the end of one year, you are expected to pay N127,250 to cover both the principal sum and the interest.

When you compare the FairMoney annual interest and that of a traditional bank offering a loan at the prevailing 27.25% official interest rate, you will see that there is a difference of N282,112.52. This is a massive amount! Not even the high risk of default associated with the non-collateralization of these quick loans can justify this interest rate.

Now, let us look at what CREDICORP is offering via its consumer credit scheme. CREDICORP is offering interest rates on loans that range from 2-4% per month to 22% per annum. In fact Nigerians (civil servants for now) can access between N50,000 to N1 million loans under the scheme at a monthly interest rate of just 4%. Wema Bank is offering civil servants salary-based loans at a 2% monthly interest rate under CREDICORP’s consumer credit scheme.

This is the lowest interest rate anyone can get on the market currently. Generally, applicants for the CREDICORP’s consumer credit can access up to N5 million depending on the income and financial needs of the applicant.

This is a much better offer than what any of the other 284 loan apps in Nigeria currently offer. What this means is that CREDICORP’s consumer credit scheme can crowd out many of the existing predatory loan app companies in Nigeria or make them drastically reduce their interest rates the moment CREDICORP eventually puts mechanisms in place to allow other working Nigerians who are not civil servants or government employees to apply.

This is because most of these digital money lenders who charge exploitative short-term and medium-term interest rates cannot compete with CREDICORP if every Nigerian who earns an income can apply for the consumer credit being offered by CREDICORP at 4% per month or 22% per annum.

THE MULTIPLIER EFFECT OF CREDICORP’S CONSUMER CREDIT ON THE ECONOMY One of the biggest impediments facing Nigerians is the lack of cheap and easy access to credits to meet certain critical needs including financing of their small-scale businesses.

This is where President Tinubu’s consumer credit scheme is expected to play a revolutionary role. The aim of the scheme as stated earlier is to accelerate access to consumer credit to 50% of all working Nigerians by 2030.

As of 2022, the working population in Nigeria was estimated to be over 60 million. By 2030, Nigeria is expected to have at least 72 million people as its working population.

The target of CREDICORP is to give access to consumer credit to half of this population, which translates to 36 million people.Giving 36 million Nigerians access to affordable credit is going to be an unprecedented milestone and many may not be able to fully grasp the transformational effect this would have on Nigeria’s economy.

I will attempt to paint a picture of the potential impact on not just the lives of Nigerians but that of the economy by borrowing some sentences from what CREDICORP’s CEO, Uzoma Nwagba recently outlined in a write-up.In the said article, the CREDICORP CEO said:

“Consumer credit is beyond a concept. It is about real people: a young graduate starting her first job with her car; a father’s credit card during a child’s medical emergency; a baker no longer needing generous family and friends to equip their small business; a household struggling with the burden of expensive petrol generators — now able to afford solar panels that cut their electricity bills by half.

“From the above, you can picture the great impact this singular policy by President Bola Tinubu can bring about on our economy in the near future. It would stimulate greater economic activities because more people would have easy and affordable access to credit to purchase things they need or to expand their businesses, which in turn increases their level of productivity and income inflows.

For example, if more persons have access to CREDICORP’s credit to pay for CNG kits for their vehicles or pay for solar panel installations in their homes, apart from helping them to drastically reduce their fuel and energy bills respectively, their ability to access the credit indirectly leads to more demand for CNG kits and solar panels.

What this means is that businesses that deal on CNG kits and solar panels will get more patronage, they may even have to expand and employ more workers just to meet up with the increased demands for their products.

These are practical examples of the multiplier effects this consumer credit scheme will bring into our economy.

THIS IS JUST THE BEGINNING OF THE CONSUMER CREDIT REVOLUTION The fact that today, many loan app companies, despite their exorbitant interest rates, privacy violations, crude loan recovery methods and other unwholesome practices, still thrive in Nigeria, indicates the huge potential in the consumer credit ecosystem. People desperately need these credits.

This is why the entrance of CREDICORP is both timely and exciting as it has signalled the beginning of the consumer credit revolution in Nigeria. CREDICORP is still implementing the pilot phase of this scheme and so far, it has partnered with five trusted financial institutions, which include:  FCMB’s Credit Direct (which was already offering civil servants credit facilities), Wema Bank, Accion Microfinance Bank, Letshego MFB, and Abbey Mortgage Bank. More than 200 other financial services institutions have also applied to partner with CREDICORP to expand access to the consumer credit scheme by making their digital infrastructure available for the scheme.

One particularly exciting thing about the direction CREDICORP is going is the fact that its consumer credit scheme is not just about cash disbursement to beneficiaries who applied for credit, even in this pilot phase, CREDICORP has in place consumer credit targeted specifically at providing certain household needs.

For example, currently, CREDICORP has partners like Accion and Letshego microfinance banks that offer credits specifically for purchase/installation of solar panels, compressed natural gas (CNG) conversion kits, and electric vehicles.

This can speed up the adoption of CNG for transportation by vehicle owners in the wake of rising PMS and diesel prices as well as the adoption of solar power solutions to provide electricity for homes, which would drastically reduce electricity bills for those who acquire them over the medium to long-term.

Let us support CREDICORP and its partners to get us to these expected milestones. Most importantly, Nigerians must now begin to understand the direction where President Bola Tinubu is looking to when he established the consumer credit scheme in fulfilment of his campaign promise.

We must trust him and give him the support to succeed because the task of creating and sustaining transformational institutions like CREDICORP is not the job of the President alone, the benefit is for all Nigerians especially those with low income. It is in our best interest as a nation to make these policies work.

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