Despite Nigeria’s vast population of over 200 million people, the country’s consumer credit penetration remains among the lowest globally, even as the total addressable market (TAM) for consumer lending in Nigeria at about $3 billion as of the end of 2023.
Statistics show that credit penetration in Nigeria is among the lowest globally and this has had a negative impact on the country’s economy and contributed to the slow pace of economic development as many businesses and consumers operate with limited or no access to credit facilities.
Research firm, Stears, said the low credit penetration in the country can be traceable to the current absence of recent and relevant credit demand data which poses challenges for commercial banks, digital lenders, microfinance institutions, and potential investors, leaving them effectively ‘market-blind’ and unable to estimate Nigeria’s actual consumer credit market size. Stears’ Credit Market Mapping Model addresses this critical need by leveraging robust data and innovative methodologies to provide a comprehensive understanding of Nigeria’s consumer credit market.
According to a 2023 survey by EFInA, 32 per cent of Nigerian adults, approximately 39 million individuals, rely on informal sources for financial assistance. Stears goes beyond assessing the formal market, offering insights into the substantial informal credit market and identifying opportunities for credit providers and investors within this segment.
According to Stears, TAM combines the estimated market size for formal consumer loans ($2.1 billion) and the projected impact of borrowers transitioning from informal to formal loan sources ($621 million).
Central Bank Nigeria has directed efforts towards the design and implementation of a robust system that addresses information asymmetry in lending transactions, assists lenders to make good credit decisions and, ultimately, improves access to credit for MSMEs and consumers. Also, there has been a rise of Fintech operators addressing the peculiar problems of traders and the unbanked population in Nigeria.
Stears said the statistics provide investors and lending operators with rigorous estimates of the serviceable market for consumer lending based on current conditions, helping them to de-risk investments and assess market opportunities.
“The scarcity of rigorous, up-to-date estimates of credit market size creates problems for commercial banks, digital lenders, microfinance institutions, and future investors by effectively making them ‘market-blind’ and unable to estimate Nigeria’s actual consumer credit market size. These data hurdles make it difficult for investors to make rational investment decisions or set reasonable expectations for market returns.
“They provide investors and lending operators with rigorous estimates of Nigeria’s consumer lending market potential based on the existing informal loan market.
“Nigeria’s informal loan market is large and not yet well understood. EFInA data indicates that more than nine out of 10 Nigerians with an existing loan obtained it from a non-bank institution. Yet there is a spectrum within this informal category, ranging from borrowing from family and friends to organised community savings groups.
“Identifying which informal borrowers and under what conditions will transition to the formal credit market remains a massive source of untapped potential for Nigeria’s consumer lending industry.”
It also said “while multiple attempts have been made to estimate the impact of improved financial inclusion on consumer lending, our approach is unique in estimating a quantifiable revenue impact of improved financial access on Nigeria’s consumer lending market.”
The Stears Credit Market Mapping model identified the cohort of informal borrowers most likely to transition to the formal lending market, saying these high-probability informal borrowers are mapped to the formal lending market as the additional market potential.
Stears evaluated the untapped potential within the population of informal borrowers likely to embrace formal credit products. Furthermore, we provide multiple market size scenarios based on changes in national income and credit data infrastructure.
It added that this unique approach establishes Stears’ Credit Market Mapping Model as an indispensable tool for credit providers and investors keen on capitalising on new opportunities within Nigeria’s dynamic consumer credit landscape.
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