Nigerian Consumer Credit: Law, Regulation and Market Insights

347 Pages·2022·6.119 MB·English

by  Philemon Iko-Ojo Omede

PALGRAVE MACMILLAN STUDIES IN
BANKING AND FINANCIAL INSTITUTIONS
SERIES EDITOR: PHILIP MOLYNEUX
Nigerian
Consumer Credit
Law, Regulation and Market Insights
Philemon Iko-Ojo Omede
Palgrave Macmillan Studies in Banking and Financial
Institutions
Series Editor
Philip Molyneux, Bangor University, Bangor, UK
The Palgrave Macmillan Studies in Banking and Financial Institutions
series is international in orientation and includes studies of banking
systems in particular countries or regions as well as contemporary themes
such as Islamic Banking, Financial Exclusion, Mergers and Acquisitions,
Risk Management, and IT in Banking. The books focus on research and
practice and include up to date and innovative studies that cover issues
which impact banking systems globally.
Philemon Iko-Ojo Omede
Nigerian Consumer
Credit
Law, Regulation and Market Insights
Philemon Iko-Ojo Omede
Faculty of Law
Veritas University
Abuja, Nigeria
ISSN 2523-336X ISSN 2523-3378 (electronic)
Palgrave Macmillan Studies in Banking and Financial Institutions
ISBN 978-3-031-11739-8 ISBN 978-3-031-11740-4 (eBook)
https://doi.org/10.1007/978-3-031-11740-4
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I dedicate this book to God Almighty for His grace, love and mercies despite
my human failings.
Preface
Traditional Nigerian society was averse to debt, and living within one’s
means was a highly celebrated virtue. Households ensured they avoided
indebtedness and those who couldn’t worked hard to conceal the ‘debtor’
status. To be a debtor was stigmatized and associated with laziness,
poverty and irresponsibility. However, thrift societies sprang up and lent
money exclusively to contributing members who were highly incentivised
to repay on time to avoid the stigma associated with a debt default. At
this stage of economic development in Nigeria and most of Africa, there
was no need for huge credits as no ambitious projects, private or public,
were conceived. The majority of the population were agrarians involved
in subsistence agriculture. They lived happily in thatched mud houses and
did not have formal education, or modern infrastructure. By 1894, the
Bank of British West Africa (now First Bank of Nigeria PLC) which took
over the Africa Banking Corporation together with Barclays Bank (now
Union Bank of Nigeria PLC) set up in 1912, pioneered the role of finan-
cial intermediation in the formal context, including accepting deposits,
making payments, and advancing loans to Nigerian customers.
As an international student of Corporate and Financial Law at the
University of Glasgow nearly a decade ago, two of the questions I often
got asked by my European cohorts (Home Students) were, ‘how much is
your tuition?’ and ‘how are you paying?’ Of course, most of them were on
student loans and their tuition was about 50% less expensive than I paid
as an international student. This triggered my interest in consumer credit
vii
viii PREFACE
and access to finance in Nigeria and the Sub-Saharan Africa region. It was
incredulous to me that ‘richer’ students from the global north could split
their tuition payments over what seemed like a lifetime (several years)
while paying less overall, while ‘poorer’ students from the global south
had to pay more and usually at the point of enrolment. I wondered about
the many brilliant friends I knew back in Nigeria who would afford to
study in the UK if only affordable consumer credit was available to them.
They just couldn’t afford a lump payment for the undertaking and so
aspiration is abandoned. How many more young Nigerians will have to
forgo a world-class education due to financial exclusion?
As I began my research, I realised that the utility of consumer credit in
developing countries has been understudied. Even though there is a vast
amount of important work in the field at the international level and in
jurisdictions such as the US and the UK, most studies on credit in Nigeria
have focused on business loans to specific sectors rather than the entire
economy, and many other international studies exclude the Nigerian
credit market from their samples as is the case with the various editions
of the World Bank’s Good Practices for Financial Consumer Protec-
tion. Neoliberal economics offers a broad range of theories explaining
the factors that influence the supply and demand for credit. From the
supply side, one account blames credit scarcity on overregulation. On the
demand side, some economists question the utility of consumer credit
to the economy, especially developing ones like Nigeria. The focus of this
book, however, is on the structure of the Nigerian consumer credit market
and regulation, and how regulation impacts access to finance in Nigeria.
To paraphrase my Ph.D. supervisor, Professor IDC Ramsay, a market
comprising consumers uncertain about using credit and lenders uncertain
about recovering money lent might result in suboptimal lending patterns,
and regulation could encourage greater confidence by both parties to
commit to long-term credit and drive demand. This sentiment reflects
the reality in Nigeria and this study is an attempt to contribute ideas to
broader efforts to remediate the situation.
In the course of my research for this book, I found the commit-
ment of regulators in Nigeria to doctrines ostensibly set by International
Financial Institutions (IFIs) a major obstacle to progress on the issue of
access to credit. Throughout my interviews with policymakers in Nigeria,
Ghana and Rwanda, whether it is on their hands-off attitude to consumer
protection in the credit market or failure to address the collateral damage
PREFACE ix
to lower-end borrowers on account of prudential regulation, every offi-
cial professed belief in IFI manuals including the structural adjustment
programme of 1986 which has since been abandoned, evolved or adapted
by the same IFIs in light of new evidence.
In Nigeria, I found out, while interacting with officials at the Central
Bank of Nigeria (CBN) and the Ministry of Finance, that the pattern
of commitment to antiquated IFI policy is partly due to elite incentive
to maintain the status quo, administrative incompetence, and a dearth
of technical expertise within government agencies not only to manage
complex regulation but to channel critical intelligence (data, evidence,
case studies) to IFIs making rules that affect Nigerians. The CBN is by far
one of the most competent agencies of government in Nigeria, but even
that body is not wholly exempt from some of the failures highlighted.
Since I returned to work in Nigeria in 2020, I have witnessed an
escalation of the credit challenges discussed in this book, especially on
access. The impact of covid-19 on businesses has led many of my clients
to either default or renegotiate existing loans from deposit money banks.
Leading these negotiations, I’ve come to learn that the credit challenge is
often bigger than the parties in the room. Many lenders are understand-
ably unwilling to advance new credit, especially to MSMEs, and are in
a precarious position because the Federal Government of Nigeria (FGN)
is both unwilling and unable to guarantee private sector loans to crit-
ical sectors of the Nigerian economy. Where the FGN manages to lend
directly or guarantee private sector loans, such schemes are beholden to
political patronage and a lack of transparency.
Through a rigorous appraisal of the latest regulatory reforms in the
Nigerian credit market and globally, a careful analysis of existing litera-
ture, and a small scale qualitative study, the book found: (a) links between
regulation and decreased lending by formal sector lenders to consumer
borrowers in Nigeria; (b) a weak coalition of change agents at the national
level to advance the interests of consumer borrowers, and thus, foresees
a role for transnational actors as change agents within the Nigerian credit
market; and (c) that International Financial Institutions (IFIs) like the
World Bank and the International Monetary Fund (IMF) must approach
this role from a social protection prism that rests on a new pro-poor ‘con-
ditionality’, distinct from how conditionality has traditionally been used
in Africa.
The book engages with the problem of consumer lending primarily
from the perspective of formal lenders, and while I hope that it would give
x PREFACE
the reader a deeper understanding of the regulatory issues, it avoids broad
generalisations. I also hope that the findings of this book will stimulate
further studies on the subject.
Abuja, Nigeria Philemon Iko-Ojo Omede