The Credit Gap in Nigeria and How Fintechs Make a Difference

The Nigerian lending industry loses trillions of naira every year due to the limitations of traditional credit scoring.

26% of the country's adult population is unbanked. This means that it is impossible to grant credit to such borrowers based on their credit history alone.

At the same time, consumer loans are a popular financial product among Nigerians. This is due to the low standard of living in the country, which makes it impossible for its residents to meet their needs.

According to Statista, the inflation rate in Nigeria will reach a record 26.3% by the end of 2024.

Gross national income per capita in Nigeria does not exceed $2,160.

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Understanding Nigeria's significant credit gap 

Due to the current situation in Nigeria, there is a significant credit gap - the difference between the credit needs of the population and the loans actually issued.

According to the data of the monthly economic report of the Central Bank of Nigeria, in January 2024, the country's residents received loans worth 3.82 trillion naira. 

Taking into account that a year earlier this figure was slightly lower (2.41 trillion naira), it can be estimated that the country's residents received loans worth about 37 trillion naira during the year.

How much credit do Nigerians need?

Please note, that in the study, we used data on Nigeria's population as of January 2024, which amounted to 226.5 million people.

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Payday loan in Nigeria

According to Datareportal, Nigeria's working population is about 108 million people. 

The average wage earner in Nigeria takes out a loan of N23,000 about six times a year. 

If at least half of the workers take out the loan, the required amount will be N7.45 trillion.

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Credit for smartphones

The average cost of a mobile phone in Nigeria is 220 thousand naira. 

Let's say they are bought on credit by 70% of the working population living below the subsistence level (according to statistics, there are at least ⅔ of them, which is 40 million citizens). 

If we consider that devices require replacement every three years, we get the required amount of loans for smartphones to be 2 trillion naira.

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Loan for laptop

According to Datareportal, Nigeria has 60.7 million people aged between 18 and 34. 

In the era of global digitalization, laptops are products that young people need for work and education. 

Even if 20% of young people in Nigeria purchase a device per year with an average cost of 700 thousand naira, the required loan amount for this purpose will be 8.4 trillion naira.

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Loan to pay rent

According to data from NOI Polls research, 51% of Nigerians live in rented housing, paying between 20 and 100 thousand naira annually. 

If at least 40% of the country's residents aged 25 – 54 years – which is 27.5 million people – take out a loan to reduce the financial burden, we will get the required loan amount of 1.7 trillion naira.

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Car loans in Nigeria

According to statistics, 61 out of 1,000 Nigerians own a car, and there are 13 million registered vehicles in the country. 

To get even closer to the figure of South Africa, where 174 out of 1000 residents own a car, it turns out that another 26 million citizens will have to buy a car. The cheapest used cars in Nigeria cost N2 million. Let's say they will be updated every 4 years. 

In this case, Nigerians would need N13 trillion annually to buy a car.

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Loans for household needs

According to official data, there are 43 million households in Nigeria. 

Each of them can spend about 250 thousand naira annually on equipment, furniture, and other household needs. 

The required volume of loans of this type is at least 10 trillion naira per year.

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Student loans in Nigeria

As in any country, a good education in Nigeria costs money – on average, a private school costs parents 300 thousand naira per year. 

According to statistics, 46.6% of the country's population are children and young people from 5 to 25 years old, potentially schoolchildren and students. 

If 40% of parents took out a loan to finance their education, they would need over N12 trillion per year.

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Mortgage

The cost of affordable housing in Nigeria is about 10 million naira. 

If at least 1 million Nigerians were provided with access to mortgage lending annually, the amount of loan funds required to purchase housing would be N10 trillion per year.

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The size of the credit gap in Nigeria and the way out

After simple calculations, we see that individuals in Nigeria need loans worth 64.55 trillion naira annually. 

In total, we get a huge credit gap of 24.2 trillion naira.

With access to innovative technologies and alternative data, fintech companies in Nigeria can bridge this gap. 

This is possible by lending to borrowers who don't qualify for traditional banks due to a lack of credit history and official employment.

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Fintech companies are key to bridging the credit gap in Nigeria

Fintech providers can solve Nigeria's credit constraints problem. 

According to the Central Banks data, these are the ones that make up the majority of the financial ecosystem of Nigeria:

Mobile banking, digital payment platforms, and loan apps in Nigeria are creating an inclusive financial system and opening up access to credit services to previously unbanked populations.

These services are particularly relevant in rural areas where people cannot be served by traditional banks due to physical inaccessibility of branches.

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How alternative data helps in lending to unbanked populations in Nigeria

One of the advantages of fintech providers over traditional banking institutions is the use of alternative data to assess the creditworthiness of potential borrowers.

Based on alternative data for fintech in Nigeria, digital lenders create their own scoring models that allow for the most objective assessment of the solvency of potential borrowers.

As a result, credit organizations can achieve a noticeable reduction in credit gaps, minimize fraud and increase the coverage of the population with their services.

The most relevant source of non-traditional data is digital credit scoring, which is offered to its users by the RiskSeal digital scoring system.

This is due to the high online activity of Nigerians:

• Almost 100 million of the country's residents are active internet users.
• 43 million Nigerians have social media accounts.
• 222 million people in the country use mobile operator services.
• Subscription-based video on demand (SVoD) is watched by 2.6 million people in Nigeria.
• Gambling platforms are very popular among Nigerians. According to TGMResearch, nearly 52% of the country's population bet on sports, while over 14% play online lotteries and gambling.

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RiskSeal’s role in lending to Nigeria’s unbanked population

RiskSeal's digital scoring system uses alternative data to assess the creditworthiness of potential borrowers and thereby improve financial inclusion in Nigeria.

According to analytical data, Nigerian credit bureaus have information on only 2.6% of applicants. Whereas using alternative credit scoring in Nigeria with RiskSeal, you can get data on 96% of the country's residents.

RiskSeal has experience working with the Nigerian market, so we have a thorough understanding of its peculiarities.
We rely not only on analyzing global platforms to evaluate borrowers but also scrutinize their activity on local resources. In total, you'll have access to 300+ data points for each applicant.

Some local platforms whose data we use to analyze their digital footprint include:

• Marketplace: Jumia
• Classified: City
• Job search site: MyJobMag
• Real estate portals: PropertyPro, Private Property
• Gambling websites: Bet9ja, Betfair, and 7 other websites
• Mobile network providers: MTN, Globacom, Airtel, and 9 other operators

In addition, we are constantly working on expanding the list of analyzed resources. This allows our clients to keep up with the times and receive up-to-date information about potential borrowers.