If you offer credit and depend on credit provision to grow your business, and you come to a village where most people who have borrowed money in the past have failed the decent credit history test, what would you do next?
- Abandon the idea to operate in that village because most of the villagers are not good credit managers; they cannot repay as agreed.
- Investigate the root cause which is preventing most of the villagers from keeping their credit histories clean. The outcome will help you determine the next plan for the business.
- Change your business model where instead of offering credits which enable people to buy more (in volume), you reduce product packaging to fit into pay and carry which can fit customer budgets without any requirement for credit.
Read this from me: the African credit system can send really bad signals. Yes, that guy has a really poor credit. That is not the whole story. The whole story is that in most state governments in Nigeria, less than 30% of workers and pensioners receive their emoluments/wages on time.
What that means is this: digital credit scoring systems will certainly catch up with them, but that does not mean most are natural defaulters. In other words, the credit score may not be what you think. Of course, you can argue that whenever that happens, it means the credit process is working; you are able to weed out those who are unable to repay irrespective of the circumstances.
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I doubt if that is sustainable in Nigeria. In America, you cannot owe people salaries and with that, the credit system offers a clear view of a person’s capacity to take credits and service them. In Nigeria, that is different; you can have means but that may not be accessible due to irregular salary payments. And if that village has everyone working in such a system, if you do not find a creative way to serve that village, your business will struggle.
As you operate in Nigeria, think beyond what the credit score says. More than 90% of Nigerian university lecturers might have defaulted on loans in the last 12 months since they were not paid during the recent strike. As you look at bureau data, do not allow that to cloud your judgment, thinking that professors and lecturers in Nigeria cannot manage credit. Indeed, think beyond the credit score in Nigeria.
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Without native intelligence, you are not in business here, because whatever you put up will struggle. Again, you can still link it to failure of the educational system, how many of the business textbooks are local? Being local does not mean it’s written by a local author, but rather the contents having the peculiarities of operating environment.
If we start getting the fundamentals right, then we can expand both the economic space and business models.