•Duplex that middle class people can afford with assistance of bank loan Photo: Sun News Publishing

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Since the completion of the banking consolidation programme, Nigerians have been evaluating the relevance of the middle class, as an essential group that should be supported to play its leading role in the development process. Economic and development strategists, all over the world, believe that any economy without a vibrant middle class is doomed to collapse.

This strength of opinion rests squarely on the unique characteristics of the middle class, as a vital link between the upper class and the wretched poor, as well as its potentialities to make impact on the grassroots economy.

That assessment was against the backdrop of the near extinct status of the group in the past years. The weakness of past governments in sustaining this all important sector readily provided critics one potent tool to disparage their much promoted laudable economic policies.

This is true when viewed against the highly flawed treatment of the Nigerian middle class at a time many emerging economies were coasting home with gains of the sector.
A glaring evidence of government's attempts at further rendering the Nigerian middle class more prostrate was incorporated in most of former President Olusegun Obasanjo's fiscal and monetary policies, which were targeted at whittling down its capacity to have access to basic, but essential needs of life, including housing, automobiles, and electronics, as well as food and clothing among others.

For instance, the government’s policy on the importation of fairly used cars into the country was then construed as an attempt to make life more difficult for some categories of Nigerian to own cars and other imported products, at a time prices of new automobiles were well beyond the reach of an average income earner. This situation was even made worse by the huge taxes and fiscal levies imposed on such items.

The result of these policies was that consumer price index and inflation rose dramatically under the administration, following its deliberate policy to discourage any form of subsidy in both the private and public sectors of the economy.
For instance, it is believed that in the area of housing, Nigeria would require over 17 million units of houses to provide accommodation for those in dire need over the next five years.
But the capacity of the public sector to deliver on this is doubtful at a time government privatization programme had rendered several middle class families homeless.

For instance, at a time the government, through its privatization project, had sold government assets worth billions of naira to a few privileged upper class at ridiculously lower prices, hundreds of middle class and lower class families were being forcefully ejected from the historic 1004 flats on Victoria Island Lagos and several other Federal Government housing estates across the country.

The impact of this was quite pronounced, as the economy suffered in more ways than one, as government’s poverty alleviation programmes fell short of addressing the critical demands of this sector.
However, having noticed the huge potentialities of the market, the Nigerian banking sector was quick to rise to the occasion, using the enormous resources generated during the 2005 consolidation programme to help rescue the middle class from the trauma of adverse government policies and to empower it further to play its desired role in the economy. This bold initiative has resulted in a booming and vibrant consumer credit market and micro credit platform where banks are assisting customers buy new cars and build or buy homes of their own.

While this is in line with the objectives of the banking consolidation programme which sought to galvanize the financial industry to play its strategic function of oiling the engines of various sectors of the economy, the concern for most observers has been the quality and innovativeness of the products and services on offer.
Typical of the nation's financial sector, there is really no distinctiveness in the quality and variety of products being offered members of the middle class who are eagerly awaiting a new dawn to reclaim their lost glory.

Perhaps the only visible difference in the products and services from one bank to another could actually be in matters of nomenclature, while the concept, motive, features and objective remain the same.
But critics of Nigerian bankers' product development orientation said the middle class is a vibrant market segment that requires creative approach to launch it to where it rightly belongs.
It has been observed that most of the consumer financing that banks do are linked to salary and income accounts of customers that can be easily tracked and monitored to achieve a high repayment rate.

But not many of the banks have shown keen interest in designing products that would service the un-banked middle class outside paid employment, considering that such offering may be useful in inculcating discipline and sound savings habit among the group thereby boosting an institution's deposit base.
The records of the performance of the market over the past few years do suggest that banks are enjoying a high level of patronage in a market that is offering some form of credit to a distraught clientele and are, therefore, committed to sustaining the scheme, through periodic adjustments in some of the service and product features.

For some, a major attraction of the market is in its linkage effect on the entire economy, considering that any time a bank finances a product acquisition on behalf of a customer, it also empowers the product vendor, thereby sustaining his business and employees. At the same time, the asset so acquired could be deployed to create more wealth and employment at some point in the nation's economic chain.
It could, therefore, be seen how Nigeria's emerging consumer market has empowered various segments of the nation's economy.

Another area that the banks seem to have played some roles in empowering the middle class is in the area of margin credit, following recent capital market boom.
This was an arrangement through which some of the recapitalized banks provided credit facilities to some investors to buy shares either through the primary or secondary market such that the stock could be sold on appreciation to recover the facility, and making some money for the stakeholder,
While it was seen as a major breakthrough in empowering the middle class to be a stakeholder in quoted companies, the flaws of the Nigerian banks showed again when most of them failed to sustain the scheme just because of recent capital market turmoil. It then showed again that the concept and product designs were shallow and lacked originality, hence their sudden flight to safety.

But elsewhere, margin credit is designed with more resilient features and, therefore, expected to absorb temporary swings in rates and the kind of market volatility witnessed in the Nigerian Stock Exchange.
As a matter of fact, there should be a measure of predictability in banking product lifecycle such that products that fizzle out shortly after introduction would be regarded a bad one.
But as the financial sector continues to draw applause for its role in activating the market, both the regulatory authorities and consumers seem to have agreed that a lot still needs to be done by all stakeholders to make assets acquisition financing the real engine of growth in the Nigerian economy.
Already, those who should know are already canvassing an amendment to the Banks and other Financial Institutions Act as well as other relevant statutes believed to be hampering the performance of the Nigerian financial institutions.

According to the Central Bank of Nigeria (CBN) Governor, Prof. Chukwuma Soludo, “there is a high correlation between bank credit and GDP performance". He argued that in most OECD economies, about 70-80 per cent of banks credit are expended on mortgages and consumer loans, pointing out that Nigeria still has a long way to go in these areas. The CBN boss said that the National Assembly has a lot of work to do to craft appropriate legislation to bring about a vibrant consumer banking sector, which is still at its infancy in the Nigerian economy at the moment.

Professor Soludo noted that there were several other legislations that Nigeria requires to deepen the money and capital markets in order to really grow the real sector and the middle-class.
He said that elsewhere, banks operate on the short end of the market (money market), while the capital market provides the long-term capital, but that the situation in Nigeria where banks short-term deposits (up to 90 days) constitute about 60 per cent of total deposit may not create the desired development indices required to grow the economy, as such, funds may not qualify for the long-term lending.
Only last week at an event in Lagos, the Technical Director of the Nigerian Accounting Standards Board, Mr Jim Obazee, pointed out that the BOFIA was due for a review following the growing incidence of mergers and business combinations in the country.
He had argued that unless the amendments were done, activities of the banking sector would remain constrained in several respects.

Obazee seemed to be re-echoing the feelings of the CBN governor, who had always called on the National Assembly to support the financial sector reforms with adequate legislations.
But according to the Managing Director and Chief executive of Oceanic Bank Plc, Dr Mrs Cecilia Ibru, the Nigerian middle-class refers to somebody who is reasonably comfortable. “When the middle-class becomes big, it would drive the nation and soon operators would key into the concept, as it could enable Nigeria to actualize the potentialities that we have all over us.”

She revealed that Oceanic Bank International Plc was committed to rejuvenating the middle class in Nigeria, stressing that “the middle class was very important in every economy and that a big middle class would drive the country toward actualizing its dreams.” It was against this background that the bank had assembled quality products targeted at recreating the middle class.
Ibru said the bank had ventured into giving mortgage facilities, adding that the Oceanic Bank Home Ownership Scheme was a product specially designed for customers to purchase homes of their own at very attractive interest rates and with flexible repayment terms. The scheme, according to her, comes with special features and offers attractive interest rates.

Another product that the banks have focused so much in their consumer credit administration is the Auto Loan’ facility designed to enable customers acquire various brands of new and fairly used vehicles with the option of spreading payment over a period of 2-5 years
Commenting on this, the Oceanic Bank chief executive explained that the customer would only need to contribute a portion of the cost of the item(s), while the bank would provide the balance.
Assets that can be financed using ‘Oceanic Auto Loan’ include all brands of new and fairly used vehicles for personal use only.

She said the bank’s ‘Wealth Creation Scheme, a consumer finance product, designed to enable customers finance, in part, the acquisition of shares of reputable companies quoted on the Nigerian Stock Exchange either through a public offer or on the floor of the Exchange, was one of the bank's strategies to recreate the middle class.

It was designed to allow all interested customers benefit from the financial opportunities that exist in the stock market, she emphasized. Other products, according to her, include Household Appliances Finance which enables customers to acquire various brands of personal and household appliances by merely contributing only a small percentage cost of the items, while the bank finances the balance on the total cost of the asset at the time of purchase. “The customer is allowed to repay the portion over a convenient period of time usually up to a maximum of 24 months.”

Other products targeted at re-creating the middle class include: Oceanic Home Equity Loans: This is a facility product that enables a property owner to access funds from the bank, using his property as collateral. The maximum amount that can be accessed using this facility is 70 per cent of the valuation cost of the property.

Ibru assured that the bank would work with the Federal Government to create a middle-class society, with a view to properly developing the country. “If you look at anywhere in the world, any successful country puts into consideration the middle class, and the middle-class is an area that you can pay attention to in order to grow.

She said the bank is currently partnering some state governments on the Public Private Sector participation scheme, towards ameliorating poverty in the country. This, she said, would be done through effective funding of the real sector as well as the bank’s numerous poverty alleviation scheme.
Commenting on other products, she said as part of its commitment to the development of a middle-class in Nigeria, Oceanic Bank International is planning about 20, 000 affordable homes for low income earners in various parts of the country. Against this background, the bank partnered the Federal Capital Territory Administration (FCTA) to float a bond to make the project a reality and has since commenced the booking of mortgages to enhance the project.
Dr. (Mrs.) Ibru attributed the bank’s successes in the last financial year to a visionary management and an experienced staff.

She said: "We just floated a bond with the Federal Capital Territory and we have been booking mortgages, so we found out that all over, there is opportunity, and it is the people that would actualize this great potentiality. We will ensure we build affordable houses for our people,".
Mrs. Priscilla Kuye, President, Institute of Direct Marketing of Nigeria, had noted that Oceanic Homes had demonstrated competitive advantage in the marketing environment through superior product offering, innovative technology, and customer-centric services. Ibru, who is also chairman, Oceanic Homes Loans and Savings Limited, said the company has carved a niche for itself as a market leader in mortgage and real estate sector.

She said Oceanic Homes is renowned for its ability to offer competitively priced mortgages to make home ownership a reality for all gainfully employed Nigerians.
Commenting on the issue of middle class empowerment in Nigeria, newly elected President of the Chartered Institute of Bankers of Nigeria, Dr. Erastus Akingbola, noted that “Banks were still making progress, stressing that demand for credit will grow as new businesses open and expansion of infrastructure continues. He said that the banking sector will also benefit from the growth of the middle class and the underserved Nigerian market.

The assets acquisition products have unique advantages from banks to bank and it is important that consumers should beware of the kind of agreements they are entering before they are trapped in cycle that would be difficult to break out from. The product, which hitherto had a repayment tenure of 48 months (four years) has now been extended to 60 months (five years), a move that the bank says would reduce the pressure of repayment on customers.

According to Segun Adejoro, head, Asset/Auto Loans, UBA Plc, “the extension of the tenor is a demonstration of the bank’s support to millions of Nigerians (especially low income earners) who are interested in owning brand new vehicles but cannot afford to make full cash payment.
To enjoy the 60-month tenor scheme, the customer only needs to be in paid employment in an acceptable establishment and operate a salary current account with UBA”.

Adejoro said UBA was aware of the safety implications of imported fairly used vehicles, noting that the extended tenure will enable more Nigerians to drive their dream cars and improve their lifestyle.
He further explained that UBA Asset/Auto Loan product has improved the lot of the Nigerian middle class, having availed them increased opportunities to enjoy products that they otherwise would not have been able to pay for.

He pointed out that UBA was partnering leading automobile companies in the country to widen the choice available to customers. Other products that bank can extend to customers include household items such as generating sets, furniture, television sets and washing machines among others
Available records also confirm that reward from middle class empowerment was also filtering down to the banks as they try to leverage the product firmly establish themselves in the market.

Only recently Wema Bank Plc launched the Wema Assets Acquisition Scheme, aimed at easing the financial burden of customers and non-customers alike wanting to acquire various assets and household equipment. Like other banks, the WEMA product is targeted primarily at salary earners wanting to acquire personal assets such as cars, satellite dish, gas cookers, personal computers, refrigerators, washing machines, air-conditioner, generating set, electronics, deep freezers among other assets.
By configuration, cost of assets shall be a minimum of N.2million, while the bank’s contribution for any given transaction will be up to a maximum of N3million.
Minimum equity contribution is 30per cent of the cost of asset(s), while the bank will contribute 70per cent of the cost.

The borrower must be a confirmed employee with a Gross Annual Income of, at least, 200 per cent of the facility. Employers’ written commitment of direct deduction of monthly payment from beneficiary’s salary and remitting same to the bank would be needed. Along with employers’ written commitment to domicile terminal benefit of a beneficiary to the bank incase of his/her termination or retirement.
The bank says it has considerate and convenient terms of repayment of between 18-24 months. According to the bank, items being financed would be comprehensively insured financed and the premium will be paid alongside the equity contribution by beneficiaries.

In the case of motor vehicle, the manufacturing date of the vehicle must not be more than ten (10) years from the date of purchase. First Bank also said it parades top of the range assets acquisition products. It said customers and prospective ones can access any of the bank’s suite of retail products, U-First. The U-First product suite, powered by FinnOne, a credit processing software that fast tracks processing of credit applications, includes Personal Home Loans, First WIFI Loans, Share Purchase Loans, Auto Loans, Household Equipment Loans, One-Off Temporary Overdraft against Salary, Revolving Overdraft against Salary, Personal Loans against Salaries and Secured Loans & Overdraft. Others are: Asset Acquisition Loans, Revenue Loans, Receivables Finance, Secured Loans & Overdrafts, LPO Finance and Cash Covered Bonds & Guarantees.

The Oceanic Consumer loan is a loan facility product that enables individual customers meet some financial obligations e.g. payment of rent, development of property among others. It has a maximum repayment period of 24 months. Interest rates are negotiable and competitive, as interest charges are calculated on a reducing balance basis. Easy and convenient repayment terms as the credit facility can be spread over a period of 6-24 months. An operative current account (COT free) through which customer will be re-paying.

Consumers are, however, warned to beware of the charges that go with these facilities. For example, at UBA, the rates are 17 per cent per annum on a reducing balance with a processing fee of 0.25 per cent taken up front and commitment fee of 0.75 per cent taken up front. Other charges are management fee of 1.0 per cent per quarter on outstanding balances and insurance of 5 per cent per annum. At Skye Bank, interest rate is 20 per cent per annum on a reducing balance facility fee of 1 per cent per annum; management fee of 1 per cent per quarter and insurance of 10 per cent per annum. Other industry rates include 3 per cent administration charge and 6 per cent on reducing balance basis. All these have, however, made the loans unattractive to many middle class people.

Consumers are also expected to collaterize their borrowings with share certificates, landed properties and in some cases the financed asset becomes self-collateralizing against the payments.
However, just as Mr Adetoro of UBA Plc earlier pointed out, banks have an obligation to let their customers know the implication of whatever contract the are going into before concluding the deal. They should let him know the interest implication, as well as the repayment schedule, so that customers do not enter into contracts they really do not understand adequately.
As a nation with poor credit culture and heavy extended family ties, attempts to withhold such vital information from a customer can create adverse consequences for both employers and the employee or even the bank.