Strong credit system unlocks growth

In Nigeria today, the absence of a strong and fair credit infrastructure continues to choke opportunities for individuals and businesses. The comparison between two young men, Tayo in Lagos and Donald in London, highlights this clear difference. Tayo, despite being gainfully employed, had to save nearly all his income for two years to afford a car, only for inflation to shift the goalpost. Meanwhile, Donald, with access to a functioning credit system, simply financed his car purchase, keeping his savings intact and his financial flexibility intact.

This is not just about cars. It is about the reality that millions of Nigerians face living in an economy where credit is a luxury and cash is king.

In nations with mature economies, credit is a cornerstone of economic activities. Such economies fund innovation, support businesses, cushion families during emergencies, and enable investment in the future. In Nigeria, however, credit remains largely inaccessible. Only a fraction of about 1.89 million out of over 47 million banked individuals had access to loans in 2019.

Small and medium-sized enterprises (SMEs), which make up 96 percent of Nigerian businesses and contribute nearly half to the gross domestic product (GDP), suffer the most. A staggering 48 percent of them still rely on family and friends for credit. With such limited financial options, how can these businesses grow, hire more people, or scale into national players?

The root of this problem lies in the weak or non-existent credit assessment infrastructure. A robust credit system includes more than just banks; it involves laws, data systems, collateral registries, credit reporting agencies, and effective debt resolution processes. These structures help lenders assess risk and lend with confidence. In their absence, banks apply steep interest rates to hedge against the unknowns, and potential borrowers, especially SMEs, are pushed further into financial exclusion.

Consider that Nigeria has only three licensed national credit bureaus, which is simply inadequate for a country of over 200 million people. Without a comprehensive way to assess creditworthiness, lenders will continue to play it safe, limiting credit flow to only the most secure borrowers.

Technology offers a promising solution. Companies like Periculum, a Canadian fintech firm focused on emerging markets, are leveraging data analytics and artificial intelligence (AI) to offer real-time credit assessment tools. These platforms give banks and lenders the insight needed to assess risk more accurately and efficiently, which can significantly broaden credit access. As Periculum’s CEO, Michael Temitope Collins, once pointed out, tech-enabled credit infrastructure could eliminate many of the risks that push lenders to extremes and borrowers into debt traps.

Still, fintech alone cannot do the heavy lifting. Policymakers have a crucial role to play. The Central Bank of Nigeria (CBN) made strides in 2019 by mandating a 65 percent loan-to-deposit ratio, which pushed banks to lend more. It worked, as loans grew by over N1.1 trillion, and interest rates dipped slightly. But for long-term impact, regulatory frameworks must evolve to support scalable, technology-driven credit systems.

There is also a broader economic implication. The World Bank estimates that about 40 percent of formal SMEs in developing nations face a finance gap of $5.2 trillion annually. In Nigeria alone, small businesses face a shortfall of N617 billion. Without access to capital, these enterprises cannot hire, grow, or contribute meaningfully to GDP growth. This financial paralysis will keep millions trapped in poverty.

Compare Nigeria’s private sector credit as a percentage of GDP, just 12 percent, to South Africa’s 129 percent or Malaysia’s 134 percent – the gap is enormous. Economies that provide credit freely to the private sector experience greater innovation, higher productivity, and more resilience. And yet, in the absence of formal credit systems, loan sharks and predatory digital lenders have stepped in. These alternatives often charge exorbitant interest rates and deploy aggressive collection tactics, leaving the already vulnerable borrowers worse off.

Just like good roads unlock access to trade and growth, a robust credit infrastructure unlocks the potential of the economy. It empowers individuals like Tayo to make purchases without years of sacrifice. It enables entrepreneurs to turn ideas into enterprises. Above all, it gives families the cushion they need during hard times.

If Nigeria is serious about inclusive growth, reducing poverty, and empowering its private sector, it must treat credit infrastructure not as an option but as a necessity. That means investing in technology, reforming regulations, expanding credit bureaus, and enforcing lender accountability. The path to prosperity is paved not with cash but with credit. It is time Nigeria built that bridge.