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Make consumer credit scheme work

The decision by the federal government to introduce the Consumer Credit scheme in the country could not have come at a better time than now.…

The decision by the federal government to introduce the Consumer Credit scheme in the country could not have come at a better time than now. With the hardship that the current economic policies have unleashed on ordinary Nigerians, there is no doubt that this scheme will be of benefit to them.

Consumer credit is the bulwark of household well-being in the economies of developed societies. It helps families to keep going in their efforts to maintain balanced livelihoods despite fluctuations in their income flows. With an inflation rate of 33.2% in March, the highest since March 1996, Nigerian consumers face a herculean task to maintain the standards of living they enjoyed just a few years ago.  So, given the high cost of living in Nigeria today, families need the fillip that such a scheme is sure to give to households. Indeed, a reasonable quantum of consumer spending would be difficult to achieve without a good credit scheme.

The scheme is coming amid reports by the Central Bank of Nigeria of surges in consumer credit in the country. The CBN, in its quarterly report, stated that consumer credit by the banking sector increased by 10.6 per cent to N2.6 trillion in the second quarter of 2023, followed by a 17 per cent growth to N3.05 trillion in the third quarter of the same year.

The bank also noted that personal loans continued to account for as much as 74.8 per cent of the consumer credit figures, leaving the balance of 25.2 per cent to retail loans.

These figures indicate that consumer credit has become an important item that can no longer be ignored. However, the amount of consumer spending would have been much higher except for the various hurdles that ordinary Nigerians face as they try to obtain even the smallest amount of credit from the formal banking sector.

Therefore, the coming of the Nigerian Consumer Credit Corporation (CREDICORP) indicates the government’s desire to improve the living conditions for Nigerians. They will use the scheme to purchase household items such as refrigerators and television sets. It will also help them in more ways, including facilitating home ownership, purchasing vehicles to ease transportation for families, and investing in education, among other benefits. These things are no longer luxuries but essentials in every family today.

On a national scale, it marks Nigeria’s firm step towards building a credible credit reporting system. It requires creating a database of Nigerians reflecting their credit scores, financial status, and other relevant metrics that credit providers will be interested in.

However, the snag in this programme is that it has been restricted for now to only government employees. And we ask: Why is it not extended to private-sector organisations? Are the employees in the private sector not subject to the same challenges that confront civil servants?

Related to the above points is the current low income of Nigerian workers in the face of the high cost of living. As many analysts have argued, what is earned today by many low-level workers can hardly pass for a living wage. So, how will this consumer credit scheme work without a living wage? How much can be deducted from a beneficiary’s salary to leave a reasonable portion to meet other needs in his or her life?

The essence of the programme is to make living easier for the beneficiaries by spreading the payment for the items they purchase. Ultimately, they will still pay for the items from their legitimately earned incomes. Therefore, if their wages or salaries are so low relative to their needs, what purpose will the scheme serve in the lives of the participants?

The potential problems with this scheme also include the current confusion bedeviling identity management in Nigeria. How will the question of identification be handled? Which identity cards will be used to identify participants in the scheme? What will happen if a beneficiary defaults on repayment of the loan?

The government may also be reminded about the state of the economy right now, especially the rising inflationary trend. Because of this, there is a possibility of people investing in this scheme, but there will be no buyers. Prices are rising so high that there may investors, while potential buyers will stay away because of the high prices of items. 

Therefore, as a corollary of the credit scheme, it behooves the government and its agencies to vigorously pursue policies that can ensure that the current high inflation and instability in the country are tamed. Without a stable economic outlook, nobody, including the potential participants in the credit scheme, can plan. Asking people to borrow in such an environment will not be in their best interest, as disillusionment could ensue if their expectations do not materialise.

 

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