The operation of credit bureaux in Nigeria has deepened the Small and Medium Enterprises (SMEs) in the country through improved loan growth and development of new products for the sector by financial institutions, Mr. Tunde Popoola, Managing Director/Chief Executive of CRC Credit Bureau, has stated.
Investigation shows that most Banks in Nigeria see the Micro, Small and Medium Enterprises (MSMEs) market as an important revenue source, but they still remain afraid of the sector because of the difficulty in assessing and managing risk. When Banks do lend to SMEs, they therefore tend to charge them a commission for assuming risk and apply tougher screening measures, which drives up costs on all sides.
Speaking at a Risk Managers Association of Nigeria (RIMAN) roundtable recently held in Lagos, Popoola asserted that loan advancement to the sector had been on the rise in recent times and introduction of new products for SMEs by Banks. He stated: “There has been growth in consumer loans, increase in credit services from retailers’ Banks as well as introduction of SME desks in some Banks as a result of worthy credit data in Nigeria.”
Recall that a National MSME Collaborative Study in 2010 by National Bureau of Statistics (NBS) and Small and Medium Enterprise Development Agency of Nigeria (SMEDAN) recommended the evolution of a Credit Rating Scheme and Credit Guarantee Scheme to solve the constraint of access to finance faced by MSMEs.
A Fact Sheet by Credit Bureau Association of Nigeria (CBAN) and National Association of Small and Medium Enterprises (NASME) noted that in spite of the several opportunities for entrepreneurial funding, which have been made available in Nigeria, Micro, Small and Medium Enterprises (MSMEs) are still constrained by funding challenges.
“The challenges are not derived from unavailability of credit but the desire of creditors to mitigate against risks. Lack of requisite infrastructure has made it difficult for credit grantors to establish the character of prospective clients and this has resulted in low quantum of credit facilities granted to MSMEs.
With reliable credit scoring systems from Credit Bureaus, a deep understanding of the businesses of MSME clients and an appropriate risk management strategy, Banks can cease to rely only on traditional collateral based approaches,” they added. On challenges facing credit bureaux in Nigeria, Popoola said that high cost of operation was a major problem for the sector.
“Credit bureaux run with sophisticated and expensive information technology infrastructure including credit bureau software, state of the art data analytics engines, communication/internet access, 24/7 availability resulting in high power and maintenance costs, full service disaster recovery infrastructure with complete software and hardware components, etc.
“To operate effectively, credit bureaux need economies of scale. The higher the volume of searches/queries conducted, the lower the transferred cost of service to lenders. Low volumes and low cost is not sustainable for the bureau industry to serve Nigerian lenders,” he stated.