One of the most prominent topics in the Ease of Doing Business or personal finance today is Access to Credit, and lots of discussions here are centered on the inability of individuals and businesses to secure loans to meet personal or business financial obligations, thereby resulting in lower productivity across board. Feedback from panel discussions, interviews, expert opinions, ‘beer parlour gist’ as well as government circle mostly conclude with some of these lines;
- SMEs cannot access credit due to unavailability of collateral
- The cost of credit is too much
- Financial institutions are only given umbrella when it is not raining and take away the same when it is required
- Elongated application process
- Excessive documentation
- The risk of collateral foreclosure, etc.
However, one major issue that is mostly neglected in the discussion around Access to Credit is the lack of a comprehensive Borrower Education. This is an integral part of the credit system if any economy or nation is expecting to create and increase productivity level. It is very easy for us as a nation to highlight and talk about the shortage of credit at different fora while blaming everybody that fit the bill of “why it is not working” and we neglect the starting point. Even the bible says, “If the foundation be destroyed what can the righteous do?
That is, if the individual or businesses expected to borrow and create production system or unleash value in the society does not have any understanding of some or all of the following;
- What is required of them to borrow?
- When they are to approach an institution?
- What type of financing is required?
- How much money is needed?
- How long, what are the cost implication for them now and in the future, etc.
If aspiring or existing borrowers does not know these, how do we expect a nation as ours to progress and increase productivity?
In most developed climes, borrower education is a pre-requisite before loans, especially mortgages are extended to anyone, while others have credit counselling classes with evidence of thorough understanding before allowing loan applications to be submitted.
Although, Nigeria is increasing the pace of financial inclusion and improving literacy through various projects, workshops, programmes and largely driven by the Central Bank, financial institutions, NGOs, but the narrative on credit culture reflect a major neglect when we check the level of borrower education. Sometimes, I am approached to provide advise for someone who is paying heavily for ignorance, which for me is not an excuse, while others will say “ I wish we knew this before we embarked on the project”.
Changing the Narrative
To build a sustainable credit system, improve credit culture and deepen productivity, all stakeholder must take on borrower education as a key foundation to lending from bottom of the pyramid to the most sophisticated level. All hands must be on deck to inform and educate aspiring and existing borrowers using ingenious means to deliver compulsory and consistent information on what is required to be a good borrower. This can be in form of credit counselling, mortgages finance education, local market or cluster workshops, distribution of educations materials on credit management in the simplest form possible, online courses, hand-holding of businesses through credit relationship, and many other ways. This will lead to greater consumer understanding of debt-based transactions.
To achieve this, there must be a deliberate and intentional action led by Regulators, financial institutions, credit unions, co-operatives, government and all stakeholders, which must be a pre-requisite before a loan application is accepted and processed.
How much more can we do in improving the level of borrower education in Nigeria?