Security is equally a challenge that shakes the entire financial system to its foundation. Robbery, kidnapping, vandalism and other terrorism-related vices make their inroads into the system daily and further challenge the development of the financial system.
Additionally, it must be noted, however, that many individuals in the country lack access to formal financial services, which can limit their ability to invest in education, start businesses, or deal with unexpected expenses. Where there seems to be some succour to bridge the credit gaps, the cost of borrowing is extremely high, more than 30 per cent. As if that is not sufficient, the conditions attached are stringent and somewhat unattainable. Expectedly, therefore, by providing access to credit via consumer credit scheme,it may help bridge this gap and empower individuals to improve their quality of life.
As stated above, it must be reiterated that this also requires a robust financial infrastructure, including but not limited to credit reporting systems and consumer protection laws, to prevent consumers from falling into debt traps. Indeed, we can borrow a leaf from the Financial Conduct Authority (FCA) of the UK to regulate the scheme.
In this connection, it has been noted that “With effect from 1 April 2014, responsibility for regulating consumer credit in the UK passed to the Financial Conduct Authority (FCA).” Accordingly, the “FCA supervises the conduct of over 50,000 firms, and regulates the prudential standards of those firms which are not regulated by the Prudential Regulation Authority (PRA). “
By the same token, “the PRA regulates around 1,700 of the largest financial firms, including banks, building societies, and major investment firms. The FCA has an over-arching strategic objective to ensure that the financial markets it regulates function well.” In all these, where is Nigeria? What system or institutional framework have we put in place to regulate the scheme? It is within the context of providing an answer to this that the consumer credit corporation may come in. In advocating a robust supervisory framework, it may involve beckoning on the corporation to collaborate with FCA and PRA, among others, to “stand on its mandate” and also achieve the same. Advisedly, this is desirable because the impact that the collaborative efforts of the Consumer Credit Corporation with these institutions can be so profoundly and enormously consequential that any serious-minded policy maker may not wishfully gloss over.
Closely related to this is the fact that there exists the challenge of credit risk and loan delinquency. In Nigeria today, there is paucity of data and unreliability of the existing ones. Save for the operations of the Credit Bureau Association of Nigeria (CBAN) which was set up in 2012 by the three licensed Credit Bureaus in Nigeria (CRC Credit Bureau Ltd, CR Services Credit Bureau Plc, and XDS Credit Bureau Ltd) to promote the development and use of credit reporting in Nigeria, this would have remained tedious.
This and other related issues like the lack of robust or established credit histories and financial literacy among consumers can increase the risk of default on loans. If not properly addressed, it may lead to higher interest rates, which can further strain the financial stability of the vulnerable individuals. Thus, implementing risk assessment tools, such as credit scoring models and collateral requirements, by appropriate institutions concerned can help mitigate these risks and ensure the sustainability of the consumer credit scheme.
Prospectively, therefore, a well-designed consumer credit scheme can stimulate economic growth and promote financial stability in an emerging economy like ours. It goes without saying, that by providing individuals with access to credit, they can invest in assets, improve their living standards, and contribute to the overall economic development of their communities. This is expected to stem the tide of corruption among the civil servants, as they do not need to primitively amass cash to own basic necessities of life. Once, they are credit worthy, this singular goodwill will speak for them and “open doors” in accessing credits in the acquisition of their daily needs.
Additionally, consumer credit scheme, if operationalized in conjunction with other monetary policy tools such as the recent hike in the Monetary Policy Rate (MPR), can also encourage savings and financial discipline among borrowers, leading to increased financial literacy and better money management practices.
Going further, consumer credit scheme can foster innovation and entrepreneurship by supporting micro, small and medium enterprises (MSMEs), among others. It must be noted that by providing entrepreneurs with the necessary capital to launch their ventures, the scheme can create a conducive environment for job creation and economic growth. It may also accentuate the appetites of the consumers, stimulate consumer spending, which can boost demand for goods and services and drive economic expansion.
In optimizing the advantage of this opportunistic development, we need to avoid being bogged down by the sole consumption of foreign goods and services. This sounds a tall order, but it can be consciously and concertedly attained by ensuring that we place high premium on the production and provision of locally manufactured goods and services that are qualitatively competitive, cheaper and more affordable than the imported ones. That way, the attendant benefits of the CCS will be fully realized as well as optimized.
It is my considered opinion that while consumer credit scheme holds great promise for promoting financial inclusion and economic development in an emerging economy like Nigeria, it also faces several challenges that need to be addressed. Consequently, by implementing appropriate risk management strategies and regulatory frameworks, among others, policymakers can ensure the sustainability and effectiveness of the scheme to drive economic growth and improve the wellbeing of individuals in our great country.
• Dr. Adaramewa, a lawyer and an ex-banker, wrote from Lagos.
