Explainer: How data can give credit access to 40m financially excluded Nigerians
Access to credit is one of the biggest barriers keeping over 40 million Nigerians away from being financially included and with the advent of the COVID-19 and the economy sliding into a second recession, the concern among many analysts is that the country may lose many more to this bracket if credit access and wealth creation are not prioritised.
During a fintech conference hosted by Mastercard and the Economist Intelligence Unit (EIU) in November, experts observed that most of the financially excluded population do not have an identification footprint, hence financial services providers are unable to bridge the lending gap which sees only about 2 percent Nigerians controlling over 90 percent of loans issued by banks.
The Central Bank of Nigeria (CBN) has strict compliance guidelines when it comes to unsecured consumers, hence one of the basic requirements is a national identity which must be provided to access services like account opening and lending.
Although the CBN has in recent times tried to improve the situation by mandating a 65 percent lending to deposit ratio (LDR), without ensuring that data of potential banking customers are captured and stored properly, the mandate will yield little result.
In 2019, the World Bank disclosed that 86 percent of adults in Nigeria do not have a credit history from credit bureaus and only financial institutions are currently submitting data on individuals and commercial entities regularly. Even then, most credit bureaus still say poor data quality remains prevalent.
Unfortunately, the evolving lending landscape requires access to quality data given that most players no longer need collateral to issue loans.
What is credit data and why does it matter?
Credit data describes any dataset that has direct application in the assessment of credit risk of an individual or business or even a government institution. It is usually segmented along with the debtor categories and lending products such borrowers may be involved with. Some of the subcategories include consumer credit data; corporate credit data; and sovereign debt analysis.
Despite the existence of licensed credit bureaus in Nigeria, the country does not currently have credit data formats or standards for the transmission of credit data. Generally, credit data are transmitted using ad-hoc formats driven by regulatory requirements.
An efficient credit data ecosystem enhances transparency for both operators, customers who need credit, and regulators. Data show that informed consumers who regularly engage with their own credit information often have more accurate data that, among other benefits, increase credit availability. These benefits work to incentivise credit utilisation and help contribute to a more robust economy.
In addition, as digital financial services are broadening and speeding up financial inclusion in many African
countries, specifically where digital mobile lending has already become advanced, data sharing between organisations remains crucial for lenders to provide highquality loans and prevent over-indebtedness.
Lending market is growing but data is still missing
The sheer size of the opportunity of the market in Nigeria has seen some frenzied growth in the lending landscape with new players making their debut almost on a weekly basis. This is also building into competitive services as each platform jostles for control of the largest market share.
Fintech lenders, such as Branch International and Carbon, are having to compete with digital lending products run by traditional financial institutions such as Gtbank (Quick Credit), Wema (ALAT), and Sterling Bank (Specta).
The CBN is also making frantic efforts to encourage more lending in order to stimulate the economy.
On Tuesday, the CBN approved the release of banks’ excess cash reserve requirement (CRR), which is above the regulatory minimum, in a move many analysts say indicates the apex bank wants more financial institutions to lend to individuals and businesses.
The only missing part is reliable data to adequately measure consumer risk players.
Ted Martynov, co-founder and CEO of CARMA, told Businessday that a better approach will be by providing a fully decentralised protocol data sharing for enterprises to fuel credit assessments with extra data points. This approach will help lending and non-lending organisations monetise their data to create a passive revenue stream. This is exactly what CARMA is about.
Founded in June 2020, CARMA provides services for mutual access to internal data for enterprises, enabling datadriven business decisions and improving credit assessment quality for professional lenders. In November, the company announced that it has secured an early-stage round led by Microtraction, a venture capital firm that invests in Africa’s most remarkable teams at the earliest stage of their venture.
The company is planning to use the funding to expand its operations across the African continent as well as establish its base in Lagos, Nigeria.
“Our early-stage venture funding allows us to invest in growing our presence across sub-saharan Africa and our ability to address the gap in the credit data ecosystem while strengthening our network of clients,” Martynov said.
It is the beginning of a long journey to become the first credit data marketplace in Africa and in the world, and analysts say CARMA would not only bring Nigeria closer to its target of 8 percent financially included population but could also open a new market for investors.