By late October 2020, Analysts announced Nigeria had slid into a recession, the lowest dip since the eighties. Many Nigerian businesses had just been hit with chaos emerging from the #endsars crisis coupled with the fact that the pandemic had already strained businesses putting them in a difficult position to generate revenue and keep staff. By December 2020, the dollar stood at N505, which meant that Nigerians were inadvertently poorer than they were in the first quarter of last year.
The government introduced intervention funds for the private sector and cut back on taxes to alleviate sufferings of the most vulnerable. The Monetary Policy Committee (MPC), of the Central Bank of Nigeria (CBN), reduced the Monetary Policy Rate (MPR), from 12.5% to 11.5% for the second time last year. The federal government through the Microfinance banks awarded grants to many SMEs.
Research on how to solve the current economic problems and help businesses pick up the pieces points towards one key solution “credit”. Credit is a contractual agreement in which a borrower receives something of value now and agrees to repay the lender later with interest. When businesses and individuals can borrow money, economic transactions can occur efficiently to stimulate economic growth. Credit allows companies to access the resources needed to produce the items we buy. A business that cannot borrow might be unable to purchase the machines, raw materials or pay its staff to make products or provide services. Loans can enable wealth-building by allowing people to increase earning power, pay for university, buy a home, benefit from rising property values or start a business. Access to credit can also be helpful, especially in emergencies.
Nigerian financial service players have identified the need to change the narrative as there are now more platforms that grant loans to individuals within seconds. Banks understand this and have moved to increase transaction volumes rather than interest rates. The interest rates on these loans vary from 3%-22%. Nigerian banks are profiling customers better than ever. They have embraced new technology, and their algorithms can match customers with the right product and at the right time.
Banks like Guaranty Trust bank provides quick credit facilities to salary earners and self-employed individuals. Funds are disbursed instantly, and the payback period is 6 to 12 months. Quick credit gives funds up to N5million at an interest rate of 1.33% monthly.
Mortgage loans exist to assist income earners in owing homes. One of such is LAPO’s scheme, tagged “Easy Home”. Prospective beneficiaries under the scheme are identified through the network of LAPO MfB branches or distributors of Lafarge.
Several organisations offer cooperative schemes to employees. Employees pledge and donate a portion of their salaries to receive yields on their savings/investments at year-end. Individuals can usually borrow as high as 200% of their salaries at affordable rates (5-18%). These cooperatives often invest in relatively safe securities and investment opportunities.
Contributory thrift scheme (Esusu)
Thrift contribution, also popularly known as ajo or esusu, is a contributory thrift saving scheme organised among people. A coordinator is usually chosen among contributors to administer the contributions. The coordinator is also responsible for handing over the lump sum to whoever is next in line.
This is a facility given to wholesalers or distributors of large manufacturers to cover the holding cost of inventory until payments arising from the sale of goods to the retailer or individual customers are received. This form of financing helps to bridge possible liquidity gaps.
Group lending schemes
A lending mechanism allows a group of individuals – often called a solidarity group to provide collateral or loan guarantee through a group repayment pledge. The incentive to repay the loan is based on peer pressure, if one group member defaults, the other group members make up the payment amount.
Overdrafts & Credit lines
Businesses that require working capital use these facilities to make up for cash shortages whilst repaying as revenue is generated.
While credit may be the answer, it is essential to note that there is indeed a probability of default and the resulting consequence may be cumbersome. It is therefore advisable to maintain a good credit score in other to avoid being blacklisted. A good credit standing increases one’s eligibility to apply for more loan products and facilities.