Popoola: We’re Changing the Face of Consumer Lending in Nigeria

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Tunde Popoola is the managing director of CRC FICO Score, a partnership between CRC Credit Bureau Limited and Fair Isaac Corporation (FICO Score), an American company with over 50 years’ experience in data and analytics. In this interview with Funke Olaode, Popoola says the partnership is dedicated to improving consumer lending in Nigeria. Excerpts:

Your company recently introduced a new product to the market, FICO. What is it all about?
The Fair Isaac Corporation (FICO) pioneered analytic solutions, such as credit scoring, that have made credit more widely available. Founded in 1956 in the United States, FICO has over 50 years history of data and analytics experience. CRC Credit Bureau is launching FICO Score, which is our latest product to give opportunity and information to lenders in Nigeria. The FICO Score is meant to help banks and other retailers to be able to appropriately dimension the risk on borrowers who are basically individuals. FICO Score will know the risk level of every borrower and be able to dimension whether it is good, excellent, average or bad. And with that, you can now have dimension of relationship you want to have with such an individual. FICO Score is introduced by FICO Corporation of United States and happens to be the number one score solution provider in the world. The company operates in about 90 countries in the world and releases over 100 billion scores every year. Once this is introduced, we believe it will change the face of consumer lending in Nigeria. It will give opportunity for financial inclusion and also give opportunity to private individuals who don’t have opportunity to borrow and lenders to give loans to people who are credit worthy based on the information they will get from FICO.

But Fico Score is alien to the Nigerian credit bureau?
Yes. But it is a number one score in the world. The credit score is a three-digit number that is generated from information in a credit report to assess the creditworthiness of loan applicants. Examples of globally-recognised credit scores are FICO Score, Vantage Score 3.0, and scores from Experian, Equifax and TransUnion. For instance, CRC FICO Score ranges from 300 to 850 with 300 being the lowest score and 850 the highest. The lower a credit score is, the riskier it becomes for the individual to default when granted credit.

What is the difference between the services of FICO and those of CRC Credit Bureau?
What CRC Credit Bureau was doing before was that we had reports of credit history, pattern of behaviour of the person (the borrower) in the last three years. With the introduction of FICO, everything has now been aggregated into figures. So with three digits, you can get everything. Again, in arriving at scores you can get all the information of the credit history. With the scores, most lenders don’t need the reports anymore because the FICO Scores is sufficient enough to determine that. It makes the job easier, democratises access to credit and also depersonalises credit rates. Lenders can give money to borrowers who have good scores, irrespective of who they are and where they come from.

They can also automate the process, which makes it faster. We are going to a stage where electronic loans will be processed, in which case even on Sundays, you can apply for loan and once the banks have electronic software that can help them to process it, you can have access to loans even on a weekend because all of them would have been automated with this new system.

What are the parameters for calculating the CRC FICO Score?
CRC FICO scores are calculated from data in the credit report, using five parameters with different weights. Credit scores consider both positive and negative information. For example, late payments will lower your CRC FICO score while a good track record of making payments on time will raise the score. Also, the scores are delivered almost instantaneously, ensuring that lenders speed up loan approvals and increase customer base.

Lending in Nigeria today is evolving rapidly, which has necessitated market share to be highly dependent on turn-around time. Again, CRC FICO Score offers more objectivity in credit decisions. You can focus only on facts related to credit risk rather than personal feelings. Sentiments, like ethnicity, gender, and religion, are not considered in credit scoring. In addition, one-off mistakes made by loan applicants are not over-emphasised in the scores, thus, ensuring that more people with long term credibility get credits.

How would you assess the consumer lending landscape in Nigeria?
Since the advent of credit bureaus, some Nigerian banks have made attempts to grow their consumer loan portfolios. There have been introduction of consumer loan products, such as credit card, auto or vehicle loans and mortgage loans. Some banks have also established dedicated desks to serve the SMEs. We have witnessed some improvements in the number of beneficiaries of consumer loans as well as the total value of loans to the consumer segment of their loan portfolios.

However, formal lending to consumers is still relatively very low in Nigeria. Nigeria has 22 commercial banks, over 900 microfinance banks, about 100 primary mortgage banks, apart from other non-bank financial institutions. Yet, Nigeria has not experienced the kind of volume of consumer credit you will expect.
The total value of loans to consumers by commercial banks is just about 10 per cent of their total loans. This is very low compared with over 40 per cent in South Africa and about 33 per cent in Brazil. Even though we have experienced growth in value of total loans over time, substantial value of loans still go to large corporates and high net worth individuals. About 30 per cent of total loans from our banks still go to the oil and gas sector. Less than five million bankable Nigerians are enjoying credit facilities at any point in time in Nigeria from commercial banks. When you situate this against the bankable Nigerians, you will realise that we have not even scratched the surface.

What are the major hindrances to consumer lending in Nigeria?
Most of the issues that pose as hindrances to consumer lending in Nigeria are historical and attitudinal, especially refusal to embrace new lending business models by our banks. One, there has always been the challenge of information asymmetry, leading to inability to have proper knowledge of the consumer borrowers.
This leads to difficulty in tracing and tracking customers by identity and by location. Secondly, consumer loan transactions are too small and regarded as expensive by the banks because of what is involved in underwriting, managing, tracking and collecting small loans. Very closely associated with this is the adoption of wrong lending models.

You cannot use corporate lending model and mind-set to go into consumer lending. Consumer lending requires special lending skills, technology and mind-set. A major model of bank lending in Nigeria is personal banking and relationship management. This adopts a system of processing individual customer application and applying personal judgment based on personal knowledge of the customer. There is no bank that can grant loans to millions of customers with this model and mind-set.

Don’t you think the economic recession has affected people’s ability to repay loans?
Clearly, recession has adversely affected the repayment ability and capacity of borrowers, both corporate and consumer borrowers. During a recession, people lose jobs, disposable income is compromised because of inflation and interest and foreign exchange rates rise, making it difficult to service on-going obligations, thereby precipitating default. A number of white-collar employees have lost their jobs and most of them, whom the banks had granted loans on the strength of their employment, are now unable to service and repay those loans. Quite a lot of other businesses have also closed shop and their employees are in the labour market. As stated earlier, about 30 per cent of bank loans in Nigeria are made to the oil and gas sector. We all are witnesses to what is going on in the oil and gas industry. The price of crude oil in the international market has declined, and for some time, the crisis in the Niger Delta prevented uninterrupted operations. Coupled with the devaluation or depreciation in the value of the Naira, the exposures by most oil related companies became humongous. They were unable to service their loans. The total nonperforming loans ratio in Nigerian banks has moved to double digit, far away from the CBN’s guided rate of five per cent.

What can be done to change the generally poor attitude to loan repayment in the country?
Most people don’t and will not willingly honour their obligations, unless there are compelling reasons, circumstances and processes. This is the situation all over the world. Nigerians are human beings, like any other people in the world. The near absolute compliance in loan repayment we see in some other parts of the world is largely influenced by the structures put in place to support both lending and borrowing and to compel repayment and honouring of financial obligations.

It is important to have a reliable and functional credit bureau system where lenders can have unbiased and quality information about most borrowers. It is also important for all borrowers to know how the activities of credit bureaus can affect them, make them have access to credit and deny them access to credit, depending on the honouring of past loan obligations.

In May, the federal government passed the Credit Reporting Act and the National Collateral Registry Act, two legislations which further strengthen the credit reporting system. Before then, the Nigerian banking system had established a unique means of identification of their customers, the now popular Bank Verification Number. So, we are in the right direction and it is a matter of time before we fully address the incidence of wilful default. We just have to keep on putting processes, structures, institutions and laws in place to dissuade wilful default and make it difficult to have access to credit once you do not fulfil your current or past financial obligations.

At the macroeconomic level, the government needs to do more to empower Nigerians. Where the macroeconomic environment is harsh and industries are closing down, and workers are losing their jobs, such phenomenon will increase default in loan obligations.