AACS Fortnightly
(Mondays)
27th March 2023

From the Chairman’s Desk,

Expanding The Economy – The Credit Policy

Africa’s largest economy, Nigeria, must unleash its productive economic potential. In 2021, the GDP was estimated at $440.8b (from a peak of around $574b in 2014). This is in comparison to BRIC countries where the numbers were Brazil ($1.6tn), Russia ($1.8tn), India ($3.2tn), and other economies like Indonesia ($1.2tn) and Mexico ($1.3tn). These countries categorised alongside Nigeria produce way more. The minimum aim of the nation should be to double its GDP in four years to about $1tn, growing at about 15% annually, and ranking within the top 15 global economies. One of the critical issues to aid the growth will be the credit system, making credit available to the citizenry and economy, rather than the ‘cash and carry’ system the nation operates.

Expanding credit facilities and its availability will bring a wider range of economic benefits, allowing the huge population to thrive better and create wealth. Credit availability will allow businesses and individuals to access the capital needed to invest in operations, consequently stimulating growth, which further increases tax revenue streams. These additional funds open up further investments in public services such as schools, healthcare, and public safety. At AACS, we acknowledge the risks attached to the scheme, including those created by the environment, weak credit bureau system, market inefficiencies, regulatory issues, high levels of default and other disruptions that an improperly implemented credit expansion may cause. However, this challenge should be a worthy one to tackle. These risks would partly be mitigated through the efficient processes, some of which would include but not limited to:

a. Risk management techniques – Banks and financial institutions must use risk management techniques such as diversification of loan portfolios, credit insurance, updated live customer database, limits monitoring and collateral requirements.

b. Regulatory controls – Governments can improve on regulation enforcement through legislations to ensure that banks follow sound lending practices, maintain adequate capital ratios, and limit exposure to risky assets. The credit bureau process, legal framework, and cross default clauses (where a default with one financial institution means you can’t access credit elsewhere) would be subject to stricter reviews and implementation.

c. Macroprudential policies geared towards monitoring the overall health of the financial system, and preventing systemic risks. Examples of these policies include setting limits on loan-to-value ratios or debt-to-income, and risk-based capital adequacy requirements.

AACS is of the opinion that the nation must be bullish in its attempt to grow its GDP, and the quest to achieve a double digit annual growth must pass through expanding credit availability.

Falil Ayo Abina

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