Mr. Gbemi Adelekan, president of the Money Lenders Association, has issued a strong call to action for Micro, Small, and Medium Enterprises (MSMEs) to prioritize a healthy credit lifestyle as a crucial step towards unlocking financial opportunities and fostering business growth. His appeal stems from an alarming trend observed, particularly within the microloan sector, where individuals with existing bad debts from various lenders continue to seek funding from other sources. This practice, he emphasizes, creates a vicious cycle of debt and ultimately impedes access to much-needed capital. A positive credit history, he argues, is paramount for MSMEs seeking to obtain financing, negotiate favorable interest rates, and access larger loan amounts when required.
Adelekan highlights the critical role of credit reports in the lending process. Licensed lenders in Nigeria routinely consult credit bureaus approved by the Central Bank of Nigeria (CBN) to evaluate applicants’ creditworthiness. A negative credit profile significantly diminishes an individual’s or business’s chances of securing loans for unforeseen expenses or critical business ventures, both in the present and future. Accumulating unpaid loans and defaults results in lower credit scores, consequently limiting access to future loans with advantageous terms and conditions, ultimately leading to higher interest payments and a more challenging financial landscape. Financial literacy, including budgeting, responsible borrowing, and maintaining a good credit history, is therefore essential for long-term financial health and stability. For MSMEs operating with constrained resources and tight cash flows, maintaining good credit can be the decisive factor between sustained growth and stagnation.
The lending landscape has rapidly evolved with the integration of technology. Lenders, encompassing banks, fintech companies, and cooperatives, are increasingly leveraging technology to assess the risk profiles of borrowers. A healthy credit history serves as a powerful indicator of a business’s trustworthiness and its likelihood of fulfilling loan obligations. Digital lenders in Nigeria and across Africa particularly rely on data-driven analysis and credit scoring to make lending decisions. Adelekan, also CEO of Trafalgar Associates, owners of Kwikpay Credit, reveals a stark reality: almost 40% of the over 1,000 daily loan applicants nationwide, both personal and business-related, possess a negative credit history.
This high incidence of poor credit reports paints a concerning picture of the financial health of many individuals and businesses. Adelekan stresses the urgent need to address this issue to restore access to financial resources, safeguard business credibility, prevent over-indebtedness, and pave the way for growth opportunities. To achieve this, Kwikpay Credit employs machine learning and algorithms to analyze both traditional and non-traditional data, including transaction history and lifestyle choices, as part of their risk assessment process. This data-driven approach allows them to extend credit, often starting with smaller amounts, to individuals with limited or negative credit histories, thus enabling them to build a positive transaction record with the lender.
Kwikpay Credit is actively implementing measures to support borrowers in improving their credit health. The company has plans to introduce a loan product linked to financial education and well-being programs. This innovative approach aims to empower customers with the knowledge and tools to manage their finances responsibly. The program will encourage customers to prioritize repaying defaults with other lenders while making their monthly Kwikpay Credit payments. Furthermore, the company intends to incorporate factors such as educational background, employment status, and income into its loan eligibility criteria, providing a more holistic assessment of an applicant’s financial standing.
The interconnectedness of access to finance, business growth, and creditworthiness is clear. Adelekan’s call for a healthy credit lifestyle for MSMEs underscores the critical importance of responsible borrowing and repayment practices. By prioritizing a healthy credit history, MSMEs can unlock access to financial resources, nurture business growth, and contribute to a more robust and stable economic environment. The integration of technology and data-driven analysis in lending processes offers both opportunities and challenges, requiring a balanced approach that prioritizes both risk mitigation and accessibility to financial services for individuals and businesses at all levels. Furthermore, linking financial education and support services to loan products offers a proactive approach to empowering borrowers and promoting long-term financial health and stability.
