How To Build a Sustainable Credit Ecosystem With Payments


For our first episode of Problem to Product, we spoke with Jacob Ayokunle the Co-founder of Indicina, Seun Adeola the Head of Growth at Shara, and Kelechi an Associate business director at FairMoney, to understand how credit financing works in Nigeria and how these companies are leveraging payments to build a sustainable credit ecosystem.  

How payments impact credit financing in Nigeria

Speaking on the current state of credit financing in Nigeria, Kelechi Iwuagwu, Associate Director: Business and Strategic Initiatives, FairMoney shares some interesting statistics about the credit ecosystem in Nigeria, in comparison with other emerging markets and the more mature western markets. 

"Only about 3% of Nigerians have access to credit as compared to more than 50% of people in western countries which is a huge problem. In Nigeria and other sub-Saharan African markets, consumer lending only makes up about 1% - 4% of the GDP, as compared to more mature markets where consumer lending contributes about 24% or more to the GDP. This goes to show the importance of credit financing to an economy’s growth"    

Kelechi also spoke about the growth of the credit financing ecosystem in Nigeria in recent years 

"The market is growing in Nigeria, between 2020 and 2021 there was a 21% growth, this means that there is still a lot of room for growth in the credit financing industry in Nigeria and this is key to developing the nation and pulling citizens out of poverty to prosperity."

Impact of Credit in The Nigerian SME Sector

One of the biggest challenges that exist in the informal sector in Nigeria is access to Credit, according to Seun Adeola, Head of Growth at Shara. Shara is solving this problem by providing credit for transactions across the supply chain for informal traders. 

Seun explained the impact of credit financing in the informal SME sector 

"Credit is a catalyst to the overall development of the financial ecosystem and one of the prerequisites to be credible for lending is digitisation of finance. Because people are trying to access credit, they start adopting behaviours that makes them eligible for credit, such as transacting more on their bank accounts and other platforms that can give them verifiable revenue options. So in a way, access to credit financing helps to drive digitisation the economy." 

How Digital Lending is Different from Traditional Credit Financing Companies 

Credit Financing options in the market vary differently from each other, for example, FairMoney offers faster access to loans without collateral.  Kelechi recalls early adopters of FairMoney to be first-time loan users with no credit history so it was important to devise an alternative credit scoring system to qualify persons who got approval for loans or not.  

However, at Shara, credit financing is a different ball game. Shara provides credit financing for specific transactions that are tied to the actual buying and selling of products, invoicing, inventory finance and so much more in informal markets. Shara then uses repayment behaviour and cycles to build a credit score for users, this is currently known as Shara score.

Seun also tells us that Shara is working to process billions of transactions through their platform, so that their customers can have a credible credit score that can be a standard such that their users can have more access to other credit financing products. 

How Payments Impact the Credit Financing

  1. Providing access to credit

    The biggest challenge for every lender is understanding the risk involved in a loan application, so lenders need access to data to make key decisions on their borrowers.

    Speaking on the type of data lending companies need when qualifying a loan request, Jacob Ayokunle, Co-founder at Indicina highlights the importance of a borrowers' payment history.

    "Payment history is a key factor in the qualification process of a loan request. It helps lenders to understand the customer spending behaviour, you can track where, when and how payments were made. All of this is made possible with the current payment infrastructure we have" 

    He went on to describe the problem with making cash payments and how digital payments exposes access to credit to everyone.

    "The problem with cash is that you might be doing a lot of good things and have a good payment history with cash but it is not recorded anywhere and this can affect a borrower negatively because there is no data to prove your their credit worthiness" 

    Indicina help lenders get the data they need, analyze this data and present it in a way that enables lenders to quickly make decisions, automate their process and provide their services as quick as possible, thereby reducing the time from the point of application to the point of disbursement.  

  2. Great user experience 

    During this Twitter Space, Seun emphasized the importance of a reliable payment infrastructure citing how the recent cash scarcity has affected Shara

    "People who want to make their repayments on their due date can't do so because of the recent issues we have been seeing with traditional banks failing."

    "Businesses in the northern part of Nigeria, especially Kano and Kaduna are cash heavy, it is very common to see people carry up to 20 million naira in a bag to pay for goods, but the recent cash policy that has also led to cash scarcity makes it hard for businesses to transact as most people have deposited the cash in the bank" 
    He also said that payments is fundamental to credit financing companies "reliability of payment infrastructure is fundamental to the user experience, payments in terms of disbursements and collections, without reliable payment infrastructure, companies offering digital lending solutions will not have a business."

    See also: Payment solutions for loan companies 
  3. Easy payments collections and disbursements 

    According to Kelechi, without digital payments, there'll be no digital lending, as digital payment solution companies like SeerBit provide the core infrastructure that digital lending companies ride on - collections and disbursements. 

    "In the lending payment flow, you typically have to tokenize a card so when a borrower defaults, you can go back and directly debit their account. If payment providers do not have this service, it would have been impossible to do the non-collaterization that we do."

Listen to the Twitter Space recording, to get full insights into how loan companies like FairMoney, Shara and Indicina are building a sustainable credit ecosystem and the role that payments play in creating more access to credit for Nigerians.