NICA preaches role of effective consumer credit system

The National Institute of Credit Administration (NICA) has emphasised the critical role of an effective consumer credit system in fostering economic growth in the country.

The group in a statement stated that such a system would enable individuals to purchase goods and services on credit, reducing the need for cash transactions all the time.

The Central Bank of Nigeria (CBN) recently increased the monetary policy rate (MPR) by 400 basis points, setting it at an unprecedented 22.75 per cent.

This adjustment marks a significant departure from the previous rate of 18.75 per cent, maintained since the Monetary Policy Committee’s (MPC) last convening on July 24th and 25th, 2023.

The decision announced by the CBN governor, Yemi Cardoso, propels the MPR to its highest point ever, underscoring the CBN’s aggressive stance on monetary tightening in response to economic pressures.

In a recent statement, NICA underscores the essence of a well-functioning consumer credit system, which facilitates the acquisition of goods and services on credit, thereby diminishing the dependency on cash transactions.

However, Nigeria’s path to acquiring consumer credit is fraught with challenges. Among these are the stringent demands for collateral, which many small and medium-sized enterprises (SMEs) cannot meet, the reluctance of banks to offer long-term loans, and the burden of high interest rates.

These obstacles have stifled the ambitions of numerous entrepreneurs and regular income earners and deepened financial exclusion, particularly among grassroots communities, according to NICA.

The statement read: “In the country, consumer credit has been bedeviled by challenges such as the demand for collateral by the lending institutions which many of the SMEs lack, unwillingness of banks to give out long-term loans, and high interest rates among other challenges.

“These have hindered the dreams of many ambitious entrepreneurs and regular salary earners from expanding their businesses or acquiring other household items.

“It has also worsened financial inclusion, most especially at the grassroots. Poor credit access hinders business growth, reduces production capacity, and adds to the poverty level in the economy.

“To support the growing economy and unlock Nigeria’s economic potential, credit availability should be prioritized.”

NICA also stresses the importance of making consumer credit services accessible to a broader population segment, including the informal sector, low-income earners, artisans, and SMEs. By extending credit to these crucial economic players, the initiative aims to enhance the resilience and growth of the Nigerian economy.

The Centre for the Promotion of Private Enterprise (CPPE) recently said that the outcome of the MPC meeting in February 2024 would hurt the real sector of the economy which is already contending with numerous macroeconomic challenges.

However, NICA noted that the Nigerian government has shown a commitment to improving the country’s credit system. It has initiated a collaboration with NICA to develop a consumer credit framework that promises to revolutionise the credit landscape in Nigeria.