Kayode Stephen: There is Increasing Demand to Deepen Financial Inclusion in Rural Areas
Managing Director of Transkredit Finance, one of Nigeria’s leading credit businesses, Kayode Stephen says Nigeria’s credit system has transitioned from being bank-dominated to a more diversified, inclusive framework. He lists drivers of this to include digitisation, regulatory reforms, and fintech innovations, such as micro-loans and open banking regulations, which have enhanced financial inclusion and improved credit assessment. Oluchi Chibuzor brings the excerpts:
How has the credit landscape in Nigeria evolved over the years?
Nigeria’s credit landscape has evolved remarkably over the years, transitioning from a system once dominated by major banks to a more diversified and inclusive framework. This transformation has been driven by increased digitisation, regulatory reforms, and the rise of financial technology (fintech) firms. The advent of micro-loans has been particularly impactful, enabling a broader segment of Nigerians, including those in rural areas, to access credit facilities. This development has significantly advanced financial inclusion by bringing underserved populations into the formal financial ecosystem. Moreover, the Central Bank of Nigeria’s (CBN) enforcement of open banking regulations has further revolutionised the credit market. By enhancing transparency in borrowers’ financial data, open banking has empowered financial institutions to assess creditworthiness more effectively and offer tailored credit solutions.
What are the major challenges facing the credit environment in Nigeria?
Nigeria’s credit environment faces a myriad of challenges shaped by economic, infrastructural, and regulatory factors. One of the primary hurdles is limited financial inclusion, as a significant portion (32%) of the population remains unbanked or underbanked, particularly in rural areas. This restricts access to credit facilities and excludes many from the formal financial system. Additionally, high-interest rates pose a significant barrier for individuals and businesses seeking credit. The elevated cost of borrowing, often influenced by macroeconomic instability and high inflation, discourages loan uptake and hampers economic growth. The high interest rate and economic volatility have also impacted non-performing loan ratios, currently at 4.12 percent, hereby eroding lender confidence. In the same vein, Nigeria also grapples with weak credit infrastructure, including inadequate credit reporting systems, limited access to reliable financial data, and insufficient credit bureaus, making it difficult for lenders to assess creditworthiness effectively. This lack of infrastructure contributes to inefficiencies in the credit market, increasing the risks associated with lending.
What impact does inflation and current high rate have on credit demand and repayment?
Inflation, which peaked at 34.80 percent in December 2024, has a double-edged effect on credit. First, it reduces purchasing power, which can cause lower demand for credit as consumers tend to prioritize essential expenses. On the other hand, rising operational costs and declining profit margins can affect borrowers’ ability to repay loans. The high rate is influenced by the heightened Monetary Policy Rate (MPR), which is designed to curb inflation, but it concurrently raises the barrier to affordable credit. This discourages borrowing for business expansion, especially for MSMEs.
To what extent has fintech reshaped the credit ecosystem in Nigeria?
Financial technology (fintech) is addressing gaps in traditional banking by leveraging data analytics and alternative credit scoring models to assess risk. Several fintechs in the credit space have been able to drive faster loan disbursements without requiring collateral. Essentially, fintechs are at the forefront of financial inclusion and credit penetration, they allow easy access to credit and provide flexible repayment options.
To what extent is the adoption of ESG principles shaping credit allocation and decision-making in Nigeria?
There is a growing focus on sustainable finance, with investors and lenders placing greater emphasis on environmental, social and governance (ESG) factors in their credit decision-making processes. The adoption of ESG principles is increasingly shaping credit allocation and decision-making in Nigeria, driven by a combination of global trends, regulatory frameworks, and market demand. Financial institutions in Nigeria are starting to prioritise credit allocation to projects that align with ESG principles, and it appears that will be one of the major drivers of credit allocation going forward.
What strategies can banks and other key players in the credit market adopt to improve credit penetration in 2025?
The credit landscape is an intricate one, to effectively manage risk and maximise returns, players in the credit space must embrace innovative practices while upholding regulatory and ethical guidelines. To improve credit penetration, players in the credit space must leverage technology in their process and develop alternative credit scoring models away from the traditional credit scoring methods which is prevalent in banks. This method often excludes many potential borrowers, a data-driven approach tends to be more inclusive.
What role does the CBN have to play in improving credit access in Nigeria?
The CBN is the primary regulator in the Nigerian credit space and is responsible for formulating policies that guides operators in the credit market. Developing flexible policies and regulatory standards to cater for smaller financial institutions who are unable meet up with certain standard can help increase credit penetration and access. Also, consistent and firm enforcement of policies and regulation will help level the playing field where all borrowers have equal access to credit.
Would you say opportunities exist for foreign investors in Nigeria’s credit market?
Nigeria’s large unbanked and underbanked population presents a vast opportunity for foreign investors to play in the credit market. There is an increasing demand to deepen financial inclusion, especially in rural areas, foreign investors can partner with local players to offer credit solutions targeting rural areas. MSMEs account for over 90 percent of businesses in Nigeria but face significant credit access challenges. This provides a lucrative opening for foreign investors to provide credit in the Nigerian market. Sustainable (green) financing is another segment of the Nigerian economy that can be tapped into by foreign investors.
What emerging trends and factors should be expected to drive the credit industry in 2025?
Fintechs have been instrumental in leveraging digitalisation to expand access to credit, particularly in underserved and unbanked areas. By integrating technology into financial services, these firms have revolutionised lending through innovative solutions such as blockchain technology and peer-to-peer (P2P) lending platforms, which are becoming key drivers in the credit market.
These advancements not only enhance efficiency but also provide alternative avenues for individuals and small businesses to secure funding. Looking ahead, the Nigerian credit landscape is poised for significant growth, driven by the expanding digital economy and the adoption of cutting-edge technologies. Beyond technological innovation, there is a growing focus on ESG-driven credit allocation, as financial institutions increasingly prioritise lending for sustainable and socially responsible projects. This shift reflects a global trend toward integrating ESG considerations into financial decision-making.
Additionally, the Buy-Now-Pay-Later (BNPL) model is expected to remain a dominant force in retail credit offerings. As many Nigerians face declining purchasing power, BNPL provides a convenient solution for accessing goods and services without immediate financial strain. The implementation of the CBN’s open banking policy is also set to transform the financial ecosystem further. By improving transparency and accessibility to financial data, open banking will enable greater financial inclusion, empower lenders to assess creditworthiness more effectively, and expand credit access across diverse demographics.
