By Charles Nwaoguji
PROF. CHRIS Onalo is the Chief Executive Officer and Registrar of the Institute of Credit Administration (ICA). He is an apostle of Nigeria’s credit bureau initiative, who believes the only way to move the economy forward was for Nigeria to move away from old fashion of cash and carry to credit system to a modern system where credit drives transactions. He says no economy grows without the use of credit and there is no example of any advanced society without a good credit mechanism.
“As we are all aware, for the economy to grow to the point of providing desired jobs and wealth creation, there must be credit extension at all levels of industrial and commercial activities. But credit business extended or granted under a sloppy arrangement is an evil worse than an economy driven by a cash-and-carry regime,” he stated.
In this interview, he spoke on challenges of credit system; how it will affect the real sector, the TSA regime and how it can fight corruption in the country.
The economy is still very fragile. For now it has no direction and this is because corruption has grown bigger than the size of this country. As I’m talking to you now, our economy is in a mess because of the misdeeds of our past leaders. No one actually comes to governance due to burning desire for a greater Nigeria. I think that if President Buhari’s antecedent for probity, accountability, transparency, good governance and discipline is still what he represents, then we can say the journey to a greater Nigeria with attractive economy and democratic principles based on the rule of law has finally commenced.
I believe that Buhari has the pedigree and personal values to turn around the economy for the good of Nigerians. There was no rolling plan from one to another, especially with a projection of where the economy is expected to be in some years’ time. All those things were not in place, so how would you say there was an economy?
We must come to terms with reality; Nigeria can no longer afford to play to the gallery. The economic team and democratic partners he has chosen, in my opinion, should remember that it is not going to be the usual practice where Nigerians are forgotten and left to cry helplessly. Buhari alone cannot do or implement the change agenda, he needs the unity and support of like-minded men and women he has chosen. If you ask me what I feel about the credibility of the people he has brought into his cabinet, I will tell you that he knows what he wants; they must have given him undertaking that they will be on the same page with him.
I believe Buhari will deliver on his promises to Nigerians but he needs time to do that. My prayer for him is not to succumb to pressure of cabals in the system, who think they own this country. This institute is determined to work with him because we believe credit economy is the only way to go.
Corruption thrives in a situation where cash and carry transaction is the order of the day but credit system tells you to buy what you want today and pay for it tomorrow from your identifiable.
If you are buying a house, the credit market tells you to pay certain percentage of the total cost, then pay the balance on convenient installment on your income over a period of time. The transaction becomes legitimate and official and corruption has been dealt with in that transaction.
I believe the time for credit economy has come and we are strongly impressing it on the government that for the president to make a name, he should not only fight corruption but build institutions that support credit economic system to replace the present cash system we operate in order to eliminate corruption from public and private sectors.
Well, you must remember that with the Treasury Single Account (TSA), there was also a reduction in the cash reserves ratio from 31 per cent to 21 per cent. So the net impact had also been cash positive for the banks and for the economy so that currently the inter-bank market is very low. No, because that’s a completely different issue in terms of banks’ lending to the real sector.
We are talking about banks taking credit risks – so whether you have public funds in CBN or it is sitting in banks’ accounts, it doesn’t change how banks think about lending.
What would encourage banks about lending is when the risks associated with lending to a particular sector are mitigated or addressed. And also when you have much more bankable projects coming to the fore, better capacity in terms of managing projects and then interest rates being at levels that make sense for a particular project. Obviously, liquidity is one of the issues as well – mismatch of funding – those are the drivers to real sector lending and I believe the banks are committed to lending to the real sector.
How banks recover loans
The Nigerian idea is do it and damn the consequences, which is against all known decency. Banks need to put in place globally accepted best practices to protect their credit.
What ICA stands for
In order to foster development of credit management in Nigeria and Africa, and to ensure that standards are set based on best practices in professional and ethical conducts, as well as provision of services geared towards enhancing skills and capacity building of those involved in credit functions, the Institute of Credit Administration (ICA) was established as a non-profit organisation in 1992 and got its legal status as a body limited by guarantee under the law of Nigeria in 2002. The institute’s bill for charter scaled through and was passed into law at the House of Representatives in 2009.
No economy grows without the use of credit and there is no example of any advanced society without the use of credit. Credit at whatever level of sector, if not properly managed, could spell doom for an economy.
As we are all aware, for the economy to grow to the point of providing desired jobs and wealth, there must be credit extension at all levels of industrial and commercial activities. But credit business extended or granted under a sloppy arrangement is an evil worse than an economy driven by a cash-and-carry regime.
All over the world, businesses extend credit to one another but successful management of these credits has been hampered, abused to a large extent by the lack of standards, unethical conducts, insider’s abuse resulting in sharp practices in the industry, evidencing that there is a systematic absence of regulation and protection of relationships between debtors, creditors and managers of credit.
In other countries of the world where economy is driven by credit system, national institutes for credit are in place to regulate, set standards, moderate ethical conducts and build capacity of the people involved in managing, controlling and monitoring credits at all levels of commercial or business credit activities.
The incidence that triggered the world economic and financial meltdown in 2008 stemmed largely from improper attention paid to sound and disciplined credit management system, thus re-enforcing the need for every country to provide necessary safeguards and infrastructure to protect local credit market economy.
Investing in power sector
Well, you have said it is not a problem that started during President Jonathan’s days; I quite agree with that. The problem has been there, especially the power problem but the fact is, with the kind of resources available to Nigeria, to build a nuclear plant that would generate electricity for the whole country will only take one to one and a half years. So why are we not looking in that direction? We have been doing IPP and NIPP now for over eight years. What do we have to show for it? Yes, there has been improvement but the improvement is negligible. Even the state of emergency could not correct the errors of the industry within six months, which is the essence of saying it is a state of emergency.
Is it the resource that we don’t have or the human capacity to manage it? I don’t think we lack any of these. Just an utopian illustration: let the government use this year’s budget to fix power problem.
The truth is, we have what it takes, the money and competence. If it dawns on our leaders the enormity of the problem that insufficient power has caused, they would have fixed it and once you fix power, half the problem is solved for both SMEs and other business entities. A hairdresser that has to buy a generator before starting her business, would be looking at buying more dryers and other equipment required, which will in turn expand her operation.
There is no economy in the world that can develop without power, no matter what source of power you have, be it solar or hydro, we have them in Nigeria. I don’t know why the government doesn’t deem it fit to harness these resources for our own advantage. The speed of our oceans’ wind is unprecedented.
In other nations, you need to know the amount of energy generated from wind alone. We need to engage other sources of energy generation. It doesn’t take 60 years to get power right, it can be done in six months. The people in government are not just up and doing enough to deliver constant power supply and we can’t get anything right without it, unfortunately.
Establishment of NCGC
The Federal Government should establish National Credit Guarantee Corporation (NCGC), which will serve as motivation for banks to lend to Small and Medium Enterprises (SMEs). This becomes necessary in order to eliminate corruption from both public and private sectors.
When barriers, economic obstacles such as taxes that retard industrialisation, levies that frustrate business growth by states and local governments are removed, when growth incentives are introduced, then we are on our way to running a robust credit economy.
The government must pay greater attention to institutionalising a system that brings the real sector, SMEs, into the mainstream of economic activities. The past governments have consistently overlooked this despite the clarion calls. But the get-rich-quick syndrome has not allowed our leaders to make this work. We must begin now to lay that foundation and grow it. When the corporation is fully in operation, it would have statutory power to stand as a guarantor to SMEs seeking loan to grow, expand or start a project considered commercially viable and that can generate jobs and create wealth.