In Nigeria, banks get a lot of stick. To be fair, I'm often in on the agenda that Nigerian banks don't do retail banking.
Before 2019, very little consumer loans, asset financing or mortgages…
Between competition and some CBN policies, consumer lending is seeing some improvement. The Nigerian central Bank has moved the loan to deposit ratio to 65%.
As much as it forced the hand of banks, it didn't address an important issue of how to discourage bad loans. Before the CBN raised the loan to deposit ratio, there were no real reasons to repay loans on time.
For context, Nigeria's loan default problem is so big, an agency, AMCON, was created to mop up bad loans.
Q3 2020: In August, CBN introduced the Global Standing Instruction. It means that if you owe Bank A some money, they can debit it from Bank B where you have your rainy day savings.
Last week, CBN took another step to force better credit behavior from customers; it introduced a fine on failed direct debit instructions.
For context, when you take a bank loan, the bank takes its repayments through direct debits every month.
You’re losing me here! My theory is, in the first year of massive retail loans, a lot of customers skipped payments for months. While those customers likely paid before the end of the loan period, it helps the Bank's books to receive those payments when due.
Welcome: The new fine on failed direct debits is 1% or N5,000, whichever is higher.
The people who could be affected are those taking consumer loans from banks. While the customers can rail against the rules, it encourages banks to give loans while ensuring that Nigerians now have disincentives against owing banks.
Next week: we'll look at how the digital lending sector, without the support of the CBN is also organising the rails to help make lending better and more secure.