The Nigerian Government has proposed a directive that will change how customers' credit history will be accessed by bank, fintechs, lenders and other financial institutions in the country. They're implementing a centralized national credit framework that connects people's credit ratings to their National Identification Numbers (NIN).
When this proposed directive is fully implemented and adopted, financial institutions, including online lenders, in the country will be able to have their hands on comprehensive, detailed and traceable credit profiles of individual seeking credits and loans. This development was disclosed by Uzoma Nwagba, head of the Nigerian Consumer Credit Corporation (CREDICORP) at a State House press briefing in FCT, Abuja.
How the proposed NIN-linked credit system will work
According to Uzoma, all financial entities, such as commercial banks, microfinance bank (MFB s) fintechs, and credit related banks, must report their customers’ credit activities, including loan acquired, loan repayments, and outstanding loans, tied to the NIN.
He declared that this proposed NIN-linked credit system will enhance credit access, promote responsible borrowing, and incentivize financial discipline in Nigeria's financial markets. It'll work as a unified national credit bureau for all financial institutions and government agencies to access individual's credit history.
Uzoma Nwagba also made it cleared that a individual's credit behavior, such as their history of loan repayments and financial responsibility, can impact their ability to access non-financial services like obtaining a passport or securing housing.
He said by linking credit history to NIN, the government or service providers may use information obtained from the unified credit bureau system rate creditworthiness as a factor in determining eligibility for these services, and potentially rewarding those with good financial discipline and limiting access for those with poor credit behavior.
The Current Method of Accessing Individual's Credit History
Currently, traditional banks in Nigeria are assessing creditworthiness using strict, rule-based scoring systems that focuses on turnover thresholds and credit histories linked to the Bank Verification Number (BVN). These histories were accessed through the Central Bank’s credit check software, primarily evaluating corporate entities or individuals with steady, structured income.
This approach often excluded regular customers, as banks viewed them as high-risk for loan defaults due to limited or inconsistent financial data. Fintech companies, on the other hand, adopted a different method by using algorithms that analyzed digital footprints, such as smartphone data, to determine credit scores.
This allowed them to evaluate a range of customers, including those overlooked by traditional banks. However, to manage their higher risk of defaults from these less conventional borrowers, they charged elevated interest rates which is very expensive for average Nigerians to payback if they default like two times.
Overall, the previous system created a fragmented credit landscape where access to credit was uneven. Banks catered to established entities or salaried individuals, while fintechs served a common but riskier customer base, often at a higher interest rate. The lack of a unified system meant credit histories were not consistently shared or standardized across institutions.
Now, that the unified credit rating system is proposed, we believe it'll change the borrowing and crediting system. Let's look at how the system will benefit banks, microfinance institutions, online lenders, and other financial institutions in Nigeria.
Benefits of NIN-Linked Unified Credit System
In addition to the fact that financial companies and government agencies will have access to individuals' credit record seamlessly, financial institutions will be more than happy to extend credits to regular customers because they'll be able to identify customers who maintain bad credit profile.
Fintech companies that use customers' digital footprint will not have access to centralized credit bureau to check customer's credit reporting, eliminating unfair consequences flagging that mostly occurred through the system used in accessing the customers' digital footprints.
However, Uzoma encouraged financial institutions to adopt the national credit system for their own benefits. In addition to that, the credit system can help in closing Nigeria’s ₦183 trillion credit gap. He said this system should not be left for public sector only, the need for private sector should also involved.
In a nutshell, the NIN-linked National Unified Credit System will provide improved credit reporting infrastructure and transparency that'll boost lenders and financial institutions confidence, helping in reducing interest rates. The system will also enable Nigerians to access more affordable credits and loans.
What do you think about this credit system for both lenders and borrowers? Let's digest your opinions in the comments section as we discuss it together.
