For several years in Nigeria, lending institutions, especially commercial banks, have been apathetic to lending to Small and Medium Enterprises (SMEs). One of the reasons given is that the rate of loan repayment default by SMEs is very high. As a result, many credit-worthy business operators are denied credit facilities.
Also, for those who do get loans, the interest rate is about 25 percent or more because the banks perceive that the risk of giving loans to operators in this sub-sector is very high.
To ensure that credit-worthy individuals and businesses would no longer have to suffer for credit-risk individuals, the Credit Bureau Association of Nigeria (CBAN) in collaboration with the Nigerian Association of Small and Medium Enterprises (NASME) recently organised a one-day public-private dialogue in Lagos on the role of credit bureaux in access to credit for SMEs in Nigeria.
The organisers explained that in advanced economies, credit bureaux help consumers and small businesses obtain financing by offering timely, credible and objective information on individual and micro-borrowers as well as small and medium enterprises. This, according to them, allow lending institutions to reduce loan processing time and costs by 25 percent or more, while equally cutting default rates by 40 percent to 80 percent. These savings mean lower interest rates in these countries for SMEs, making credit more affordable and available to those in need.
Lanre Oniyitan, a consultant who delivered the keynote address, said: “We have statistics that show that credit bureaux are the way forward. One of the key research was done by the African Development Bank. Access to finance is higher in countries with private credit bureaux. Credit bureaux make things better for all of us.”
She also presented data showing how credit bureaux had been reducing the rate of non-performing loans in some countries, some of which were conducted by the International Finance Corporation (IFC). These credit bureaux help individuals to provide reputational collaterals.
During the forum, it came to the fore that SME businesses with good credit history at the credit bureaux can re-negotiate interest rates and reduce it from the 28 percent that small businesses are normally charged because they are perceived as high-risk borrowers.
Other institutions apart from banks were also enjoined to submit credit information to credit bureaux to help them build strong database and make credit reporting more robust. These include firms that do rental payment, telecom companies on customers that they provide post-paid telephone services for, leasing companies, hotels that allow deferred payments for clients, and so on.
Individuals were also enjoined to check on their credit status, by going to the credit bureau to check up on their credit rating even before they are in need of financing.
During the panellists session, discussants explained how credit bureaux stimulate economic growth and expansion by ensuring lenders are provided with information that help to determine the credit worthiness of their potential borrowers as well as monitor the performance of existing borrowers. For individuals who are in disagreement with the report on their credit ratings, the means of resolving such issues were also explored.
Panellists at these forum include Ezekiel Oseni, general manager/head, risk management division, Bank of Industry, Tunde Popoola, managing director/chief executive, CRC Credit Bureau Limited, Eke Ubiji, executive secretary, NASME, Ubong Awa, project manager, IFC, Tokunbo Martins, Central Bank of Nigeria, and Mobolanle Adesanya of CBAN.