How credit bureau can help individuals, firms to access loans 
without collateral, by Popoola


May 24th, 2012

Ahmed Babatunde Popoola is the pioneer Managing Director and Chief Executive Officer of Credit Bureau Limited (CBC). Before this position, he was in the banking industry, where he rose to the rank of a general manager. He is the founder of TOMEB Foundation for Youth Development and Sustainability. He has over 25 years work experience, which traversed both the public and the private sectors of the Nigerian economy. Popoola also served on the board of several small and medium sized companies. In this interview with BUKKY OLAJIDE, he bares his mind on the positive effect of credit bureau and other related matters. Excerpts.

Do you think Credit Bureau System is changing the country’s financial landscape?

I think it is important to start from the importance of Credit Bureau to an economy first. There are various ways to look at that. The most important one is to promote information sharing among lenders so that they can overcome the challenge of information asymmetry. We have a situation where only the creditors have information about themselves and they don’t have completeness of information about the borrowers.

It is also an opportunity for them to enhance the speed of access to information about the borrowers and to be able to determine the credit worthiness over a period of time.

So, when they have all that, what it does is that it reduces their turnaround time and therefore bring down the cost of processing of loans, which brings down the cost of underwriting of loans, and which eventually now goes to bringing down the cost of access to loans, even to borrowers themselves.

Now, when all those ones are going on, the implication is that the economy becomes better.

In Nigeria, the adoption of Credit Bureau infrastructure has been very courteous since it came in 2009. Its adoption by the banking system had been very courteous.

In fact, I will say that the adoption we had has been regulatory induced. It was as a result of Central Bank’s issuing circular and so on.

It was not initially seen as a value addition infrastructure as it were but now, things have improved because we now have all the banks joining the credit bureau system.

But the spate of goals or adoption was very slow at the initial stage. When you compare us with South Africa, you discover that they access the bureau infrastructure of about 80 million records in a month. That comes down to an average of almost 2.5 million records in a day.

So, that will tell you the kind of access that people have to credit, it will tell you how important the infrastructure has become for them. Even in Dominican Republic, which has a population of just about ten million people, they do access credit bureau infrastructure at about 150,000 people, everyday. That translates to about almost 4.5 million records that they access. There are about over 500 enterprises that are linked with the Credit Bureau System in the Dominican Republic. That tells you that we are still far away.

In Nigeria, we are still doing less than 100,000 in a month as we speak. But then, the depth of using the Credit Bureau infrastructure is increasing.

Coming back to whether the Credit Bureau System is changing the country’s financial landscape or not, yes. It is changing the financial landscape in a very systematic manner though very slow. Now, we have more usage by banks. Now, we have testimonies of how Credit Bureau has been assisting a lot of financial institutions, thanking us for how the Credit Bureau infrastructure has assisted them to make recovery and also to be able to know the credit worthiness of their customers.

So, to that extent, you can see that there is appreciation of what we do. Again, more organisations as well as more companies are joining, including leasing companies, auto dealers as well as a travel agencies.

This means that there is a value creation that we have brought to lending in Nigeria and there is that awareness which is making people to see the effect of what we are doing.

In changing the financial landscape, it is important for us to know that the Nigerian banking system is characterised by high margin, low volume model of lending.

In Nigeria, consumer loans is less than ten per cent. Its actually about five per cent. So, until the Nigerian banking system change the model that they are running, we may not still get there.

So, they need to change from focusing on the high-earned small number of enterprises to low earned large base of consumers and small businesses. That is the only way the economy can open up and increase consumption. If we don’t increase consumption, there is no way we can increase production.

What are the challenges faced by Credit Bureau operators in the country?

There are so many challenges, but I will emphasise three of them.

The first one is about awareness and our readiness to change. We discover that despite our being in existence for almost four years now, quite a lot of people are still not aware of what we do and how we run.

So, we believe that the issue of awareness about what Credit Bureau can do and the kind of value that we add to an economy should be taken up beyond our individual efforts as companies. The government or our regulators, like the Central Bank, can assist us, even the National Orientation Agency can assist us.

Because, a bureau is not just an economic infrastructure, it is also a social institution because it changes the behavioural pattern of people regarding how they meet their obligations and it can assist eventually a large segment of the society to have access to credit.

So, we think there is need for people to be more informed about the existence and the value that credit bureau create in the economy.

It should be emphasised that when you have an efficient credit bureau, it makes it possible for genuine people, who are credit worthy and those who have integrity to access credit without necessarily having collateral or security. It also brings down the cost of fund and the cost of accessing loans. So, these are issues that we need to address and make sure that ordinary people understand.

The second challenge is about unique identification. Up till today Nigeria still does not have a unique identifier. In most places where you have successful Credit Bureau infrastructure, there is always one single means of identification. In Europe and America, it is the social security number. In some places like India, it’s the Tax Identification Number. In a country like Egypt, it’s the National Identity Card. So, Nigeria also needs to embrace a unique identifier.

This is because a bureau relies on identification of human beings to be able to merge our data and come up with the product that we will deliver to the market. Without this, it becomes more costly for us to be able to produce and it becomes more cumbersome for us to be able to really come up with more quality products.

It is our hope that before the end of this year, we will have a unique identifier for every Nigerian. This is one area that we think has been slowing us down.

Another one is about legislation. A Credit Bureau requires a robust level of legislation to be able to function well.

In the absence of a robust law, which will be an Act of Parliament, what we have is an indiscriminate way of doing business. Now, a bureau is an infrastructure and it relies heavily on information technology and it also needs to be available 24 hours a day.

So, in this environment where electricity is epileptic, you can imagine how much we are spending on diesel alone to power generators and back up for the original generator.

Where you have a robust legislation guiding the operations of Credit Bureau as well as protecting the interest of consumers, you cannot refuse credit to a typical consumer or a company with a good credit history.

Do you think operating a credit database is possible in an environment filled with shrew and fraudulent characters?

In fact, as an institution set out to provide information on credit worthiness of individuals and companies, our focus is to enable those who have very good credit worthiness to be able to have access to credit and to crowd out completely all fraudsters, and defaulters from the Nigerian lending industry.

This is because, once you have a credit bureau, its easy to see who have taken money from where and what is the performance of all those obligations.

So, its becomes so easy to isolate fraudsters, defaulters and those with shady characters because you now have at a glance by touch of screen through your website, information about the activities of people.

So, when you have that, you are in a situation to take informed decision and the challenge of information asymmetry is completely removed.

In the absence of Credit Bureau, anybody can go to any lender and pose as anything and give information to a lender based on what he thinks he wants to give out.

But with the presence of Credit Bureau, a typical lender does not even need to be asking you what you have been doing, he just needs to go to that third partly, which is the Credit Bureau, and access your information and ask everything about your past obligation.

Microfinance banking almost failed in Nigeria, because people borrowed money and made away with it. How will Credit Bureau system help them out?

There are three major areas that will help microfinance banks. We assist them to increase efficiency of loan analysis.

It also enables them to have information to prevent over indebtedness. Because one of the challenges that microfinance banks have in Nigeria is people taking money from various places and taken more than the capacity to deal with.

So, Credit Bureau gives an overview of the total exposure of individuals and small businesses and therefore allows a microfinance bank against over-indebtedness.

Credit Bureau will also help them to decrease default rate. Because they know that once you default and your information is in the repository of a Credit Bureau, hardly can you get credit in other places.

But we have had issues with microfinance banks. This is one section of the Nigerian economy that has not really seen the beauty of Credit Bureau infrastructure.

What is your opinion on the cash-less policy of the Central Bank?

The cashless policy of the Federal Government through the Central Bank of Nigeria is laudable. You cannot fault it because this is where the direction of the global payment system is making payment through electronic system rather than holding cash and Nigeria cannot be isolated from the rest of the world, especially when we say we want to be among the topmost 20 nations of the world in 2020.

And a modern economy runs on electronic payment. So the advantages of money policy of the government is much. As we speak, less than 70 per cent of the money in circulation is in the banking system. So, no matter the monetary policy tool that is adopted, its not going to be as effective and of course, the cost of even printing money is so enormous not to talk of the fact that, maintaining the money, printing the money, bullion van services and individual exposures to risks in carrying cash. All these things will become a thing of the past if they get it right.

With huge oil earnings, Nigeria as a country is still being classified among the poorest of the world, why is this so?

It is very unfortunate that with the huge resources that we have, Nigeria still has over 70 per cent living below $1 per day. I think it is unpardonable. One of our major challenges has been the budgeting system that has been skilled in favour of the recurrent expenditure yearly, we spend on things on today. I think the budgeting system should be such that more is given to capital expenditure than to recurrent expenditure.

Anything below 50/50 is criminal because if you don’t save for the future, how do you invest? If we spend so much money attending to things of today, then we are really mortgaging the future of our children.

Also, there is quite a lot of loopholes and wastages and I think the government has a lot of framework and accounting process, they can plug quite a lot of loopholes and really bring down the cost of recurrent expenditure.

Also, the application and utilisation of funds do not get to the desired targets and we do not carve the required outcome. Because even the small amount of money that is spent on capital expenditure, hardly do we see the result.

When they construct roads, the roads become bad within four or five years of its construction, they are out of system. How much proportion of our capital budgets do we implement in a year. We don’t sit down to do cost effectively. So when they are doing a budget, even of capital nature for a particular thing, hardly do you see it getting to the right target. Any budget that does not cater for the welfare of the citizens is not a good budget.

The state of infrastructural decay in Nigeria is worrisome, and that is not making the economy to grow. What can you say about this?

Nigeria has a high level of deficit of the infrastructure and it is in all facets of our life. Light, transportation and the education system are poor and dilapidated. There is issue of health, name it, anywhere you turn. All basic infrastructure that we need to develop as a nation, none of them is functional. Even the ones we have in the past have all collapsed.

People do not have access to basic things of life, which is the whole essence of infrastructure and so, no country can develop without sound socio-economic infrastructure.

So, we have to identify priority areas and we have to look at what is the most important thing to us. For me, we should go to the era of national planning.

In those era, when national planning was in vogue, what we wanted to do in five or ten years. We put it on the roads today hospitals and so on would have been put in a plan. Today, that is why a government will start something, another one comes and says its not a priority project because there is no plan.

Serious economics always know what they want to do in the next 20 years and so the national budget is an outcome of a portion of that plan that has been earmarked for that period is what they execute. So, it does not matter who comes to government, there is a template to run with.

Now, when we don’t plan, there is little we can achieve. And in planning, we also have to make use of data.

So, the critical element should be how to improve the quality of human capital. We must also plan the priority in the context of how do we provide roads in the economy and the growth that will come and be accompanied with jobs, not a jobless growth that we are witnessing now and its only by investing in the right infrastructure. If we invest in the right infrastructure, you have employment generation through that you also have opportunity for private sector to thrive.

And for me, Nigeria is only sitting on a time bomb because of this because Nigeria has a youthful demographics. Over 69 per cent of Nigerians are below 30 per cent of age.

If we don’t have human capital development framework to be able to take care of this people to develop them and to get them jobs, we may be in for serious trouble and so we really need to look at what we have to do to provide infrastructure to enable the private sector to provide goods and services.

What is your opinion about the planned review of Personal Income Tax?

Personally, I am one of those people who advocated for a review of the Personal Income Tax. The one we had was for 2004, now we have another Personal Income Amendment Act of 2011.

It is more inclusive because it has brought more people into tax paying bracket and that is really commendable. I see it also as being more progressive because when you look at taxation, two major elements that are very important are inclusiveness and progressiveness.