Consumer Credit as Catalyst forEconomic Revitalisation
Consumer credit is a financial arrangement that empowers individuals to borrow funds for personal, family, or household purposes enabling immediate purchases of goods and services while offering flexible repayment options. Kayode Tokede breaks down its importance in Nigeria’s economic revitalisation, jobs creation and rebirth of ‘made-in-Nigeria’ goods and services
When consumer credit is strategically deployed and incentivised, it is a powerful driver of economic growth, demand stimulation, and job creation. Globally, the expansion of consumer credit has been directly linked to increased Gross Domestic Product (GDP), higher consumer spending, and the creation of millions of jobs.
For Nigeria, establishing a strong consumer credit ecosystem is not merely a choice—it is a strategic imperative for achieving sustainable economic development, fight corruption, job creation, and improving the livelihoods of our citizens. The different types of consumer credit are: revolving credits, instalment credit, open credit and personal loans and cash advances. Instalment credit, it is characterised by fixed-sum loans repaid over predetermined periods through regular instalments. Installment credit includes auto loans, mortgages, and loans for household items like appliances and electronics. This category constitutes a significant 60- 70 per cent of total consumer credit globally, largely driven by home mortgages and car loans. In Nigeria, the prevalence of this type of loan is notably low; for instance, the total home mortgage portfolio in Nigeria is less than 0.5 per cent of GDP, compared to 20 per cent in South Africa and about 23 per cent in Namibia and Cape Verde.
For personal loans and cash advances, it is designed for short-term financial needs, are notable for their high-interest rates and fees. They represent 3 – 5 per cent of total consumer credit in many countries. In Nigeria, however, personal loans and cash advances are the most prevalent form of consumer credit, making up about 90per cent of the estimated N8 trillion- consumer loan portfolio of financial institutions.
In addition, the student loans, however, aimed at covering educational expenses such as tuition, books, and living costs, student loans often have unique repayment terms. Globally, they constitute about five – 10per cent of total consumer credit. In Nigeria, student loans were largely absent until the recent introduction of a student loan program by President Bola Tinubu through the Nigerian Education Loan Fund (NELFUND).
Impact of Consumer Credit
With hindsight, a look at the past and present levels of impact of Consumer Credit on Nigeria’s economic growth can help provide some context to the crucial necessity to take very seriously the current Presidential mandate to strategically connect, regulate and enhance consumer credit in a manner that adequately aids the broader national economic objectives of expanding the manufacturing and industrial sectors, creating employment opportunities, combating corruption, and catalyzing economic growth. In the 1950s and 1960s, as Nigeria embarked on diversifying its economy post-independence, the government implemented policies aimed at stimulating industrial growth. A critical, but strangely often overlooked factor during this period was the role consumer credit played in driving economic development. In the 60s and 70s, consumer credit primarily facilitated by private finance companies through hire-purchase agreements, was extensively used to finance the purchase of durable goods and capital equipment.
This access to credit significantly boosted consumer spending, increased demand for locally produced goods, and supported the expansion of the manufacturing sector. By 1964, approximately 38.4per cent of total outstanding credit originated from these finance companies, with commercial banks providing essential operating funds.
It is very much noteworthy that Nigerian governments at various levels also played a pivotal role by guaranteeing loans to workers for purchases such as motor vehicles and consumer durable products, thereby expanding credit access for individuals. The growth of consumer credit in the 60s and 70s not only improved the standard of living for many Nigerians but also stimulated growth in the local manufacturing of goods and services (e.g. the motor vehicle and consumer durables industries).
However, the introduction of the Structural Adjustment Programme (SAP) in the 1980s, which led to unrestrained importation and a high-interest rate regime, resulted in reduced credit availability and affordability for households.
This shift severely impacted local industries that were mostly reliant on consumer credit, diminishing their ability to compete against cheaper imports and leading to the gradual decline of these industries, and ultimately resulting in the loss of millions of jobs.
A point that cannot be missed is that the years when consumer credit, represented by access to finance and support through reliable Government Guarantees were available remain the growth years of local manufacturing and great impact on availability of jobs across Nigeria to date. Instructively, the years where consumer credit and government guarantee to support the financing and the purchases of durable goods and capital equipment vanished have also remained the years of local manufacturing and industrial services decline to date.
At present, consumer credit penetration in Nigeria remains critically low, comprising less than 10 per cent of total private sector credit by Banks and less than three per cent of GDP, as highlighted in the recent economic report by the Central Bank of Nigeria (CBN), comparing quite poorly to other peer African economies such as South Africa (40 per cent), Kenya (10 per cent), Egypt (12 per cent) and Morocco (30per cent). This limited penetration is predominantly focused on cash loans, with minimal strategic use of consumer credit to drive the productive sectors of the economy.
According to the World Bank, Credit Infrastructure, which is the first key pillar, refers to the sets of laws, institutions, and mechanisms that enable the efficient and secure extension of credit in an economy. This infrastructure is essential for ensuring that credit markets function effectively and it includes several key components such as credit reporting systems, collateral registries, secured transaction laws, insolvency and debt resolution framework and of course, adequate legal and regulatory frameworks.
A well-established credit infrastructure is the bedrock upon which consumer credit markets thrive, by providing the necessary environment for lenders and borrowers to engage in secure, efficient, and transparent transactions.
Fulfilling campaign promise
Tinubu’s commitment to fulfilling his election promise to institutionalize consumer credit in Nigeria is evident from the President’s approval and directives for the incorporation of the Nigerian Consumer Credit Corporation (NCCC).
This evidently demonstrates the President’s commendable fidelity towards enhancing the economic well-being and quality of life for all Nigerians. Closely ingrained into the President’s vision is a mandate to strategically connect, regulate and enhance consumer credit in a manner that adequately aids the broader national objectives to expand the manufacturing and industrial sectors, create employment opportunities, combat corruption, and catalyze economic growth.
To ensure the effective execution of this mandate, a Board of Directors and Management Team at Corporation, comprising functional experts from both the public and private sectors, have been constituted to lead the Corporation to facilitate access to credit for Nigerian consumers.
This significant economic direction of President Tinubu requires the collective backing of policymakers, the financial and banking industries, our international partners, the manufacturing and service sectors, and indeed, all citizens, to ensure its success.
Aderemi Abdul’s mandates
The current state of consumer credit poses significant challenges to economic growth, financial inclusion, and the overall development of the financial sector.
The mandate of NCCC is to reverse this trend by removing structural, market and policy barriers that are hindering the growth of consumer credit in Nigeria via three key pillars: Credit Infrastructure, Cultural Re-Orientation and Capital.
The Chairman of the Corporation, Aderemi Abdul stated that the corporation is dedicated to strengthening Nigeria’s consumer credit ecosystem by collaborating with financial institutions, credit bureaus, fintech companies, and regulatory bodies to expand credit reporting coverage.
According to him, this helps to increase the number of consumers included in credit databases and while also improving the quality of credit information.
“Additionally, the Corporation is committed to working with the CBN to enhance the use of the National Collateral Registry, enforcement of the Global Standing Instruction Framework and modernizing secured transaction laws. This effort will ensure broader access to credit on favorable terms to qualified Nigerian citizens.
“The Corporation will also work with policymakers, credit bureaus and industry bodies towards integrating our National Identity Management system into our consumer credit infrastructures, and helping in the strengthening of Nigeria’s laws to better support the consumer credit market, streamlining debt resolution processes, ensuring effective enforcement of credit contracts, protecting the rights of creditors and borrowers, and ensuring that financial institutions and borrowers operate with transparency and responsibility.”
He stated that in pursuing this journey of rejuvenating the Nigerian economic growth through consumer credit, there is also a need for cultural re-orientation.
“This is another critical pillar within the Corporation’s focus. As many experts are aware, one of the most pressing challenges in expanding consumer credit is the need to transform the cultural mindset of the populace towards understanding and embracing responsible lending and borrowing practices,” Otunba Abdul said.
Abdul expressed that this misconception not only jeopardizes the sustainability of the consumer credit system but also hinders its potential to drive genuine economic empowerment and growth.
“To address this, the Nigerian Consumer Credit Corporation is dedicated to implementing comprehensive financial literacy programs aimed at educating consumers on the importance of creditworthiness, the benefits of maintaining a strong credit history, and the critical responsibility that comes with borrowing.
“By fostering a culture of responsible borrowing, we can help more Nigerians to recognize that consumer credit is a powerful tool for enhancing the quality of life—provided it is used judiciously and with a steadfast commitment to honouring repayment obligations,” he said.
“Through these initiatives, the Corporation seeks to transform the cultural perception of consumer credit in Nigeria, while positioning it as a cornerstone of economic opportunity and financial inclusion, rather than a temporary welfare hand-out solution or an entitlement programme,” he explained.
He added, “With the first two pillars cleared, the issue of Capital, as the third key pillar, comes in vividly. The lack of low-cost capital, short loan tenors, and high interest rates continue to hinder the expansion of consumer credit in Nigeria, these significant challenges restrict credit availability and affordability for many Nigerians.
“At the Corporation, we will provide wholesale lending to expand the reach of consumer credit across the country. By ensuring that regulated and registered retail lenders especially those with limited access to low-cost funding e.g. microfinance banks, fintech, finance house etc. have the necessary capital, to make consumer credit more accessible, particularly to underserved and low-income households.
“While public budget allocations will be instrumental in jumpstarting wholesale lending initiatives, I understand that there are inherent limitations to relying on this approach as a medium and long-term solution. Public funds are finite and must be allocated across various competing priorities, such as infrastructure, healthcare, and education.”
“Over-reliance on government budgets for wholesale lending can strain public finances and limit the scope of consumer credit expansion which has a potential market size of over N150 trillion naira (over $100b). Moreover, public budget allocations are often subject to economic fluctuations, which can introduce uncertainty and volatility into the wholesale lending market.
“This makes it challenging to plan and execute long-term strategies for consumer credit expansion. Recognizing these limitations, we view public budget support as a necessary but temporary measure. It serves as a crucial bridge, enabling us to build momentum in the consumer credit market and lay the foundation for more sustainable sources of wholesale capital.
“The strategy is to transition from full reliance on public budgets to attracting local and international wholesale capital by offering guarantees that mitigate lending risks. These guarantees will make large financial institutions locally and internationally to provide wholesale funding to retail and smaller financial institutions securely and at lower rates that can make investments in Nigeria’s consumer credit market more secure and appealing, and thereby encouraging the influx of capital needed to scale the sector,” he explained.
“Additionally, the Corporation will leverage innovative financial instruments, such as credit-linked notes and the securitization of consumer loans, to enhance the liquidity of the consumer credit market.
“By converting consumer loans into tradable securities, we can create a more dynamic and flexible market, allowing for easier capital movement and increased investor participation. These strategies will not only boost the availability of funds for consumer lending but also ensure a more resilient and robust financial ecosystem, supporting the sustainable growth of consumer credit in Nigeria.
“However, it is crucial to expand consumer credit with a clear understanding of its broader economic implications. A significant risk associated with exponential growth in consumer credit is the potential to inadvertently fuel mass importation of foreign goods. When consumer credit is predominantly used to finance the purchase of imported products, it can exacerbate Nigeria’s trade deficit, weaken the naira, and strain the local economy,” he said.
