Why access to credit is necessary for building a middle-class in Nigeria
“Gbese”, “debt”, “ugwo”… are some of the terms used to characterize credits in Nigeria, Africa’s largest economy. One commonality in all of these descriptions is that Nigerians are unreceptive to the idea of using the gift of credit facilities. The culture in Nigeria is “do it yourself” and the reality is that Nigerians are apprehensive about getting any sort of credit facility, believing it is too expensive, risky, and liable to end with the bank seizing your property.
Some people may say this is because some Nigerians are too proud, others could blame it on the fact that some Nigerians lack the financial education to understand the benefits of receiving credits but what if the problem is access? Do Nigerians have access to credits and more importantly should some blame be shifted to financial institutions who are yet to understand why access to credit is important to building a middle class.
In its The Middle of the Pyramid report in 2011, the Africa Development Bank defined the middle class as persons with yearly incomes exceeding $3,900 (or a per capital expenditure of $2 to $20 day) while the World Bank broadly defines middle-class as those who earn $12 to $15 per day. However, over 100 million Nigerians earn less than $1 a day. It’s fair to say that the percentage of Nigerians who fall into the middle class needs to be increased and access to credit may be just the boost Africa needs.
Let’s consider Bayo, the owner of a small business in Lagos, Nigeria, one of the biggest cities in Africa. Bayo owns a factory where he produces handmade shoes. The cost of production for one shoe averages about 5,000 NGN and the average sales price is about 10,000 NGN. As often happens in Africa, Bayo has a 100% profit margin, but his business isn’t able to scale because it’s spent almost all of its cash on running the business. However, this story could be a lot different.
Bayo could get access to credit targeted specifically to grow the business that allows him to invest in better technology, a bigger space, a better advertising budget, more skilled workers and better pay for his employees. The business can scale in 7 years instead of 15 and this growth affects more than Bayo or his business, it also affects other parties who work with or for Bayo.
Credit doesn’t just solve the problem of businesses scaling, in this same way, it solves the problem of people scaling. The parent trying to get their child into university, the young graduate who needs to travel to school, the mid-level employee trying to get certifications to advance her career, the working bachelor who needs a car to increase his productivity at work daily and the pregnant woman who needs a loan for safe delivery. Access to credit allows for access to a better quality of life and exponential financial growth for people across any population.
It would be dishonest to assume that the growing reduction of the middle-class population is solely due to lack of access to credit, however, enabling business and individuals to grow financially is a good starting point towards the journey of increasing the middle class across any population.