Several interested parties often tout Nigeria as a massive market. Issues around the accuracy of its actual population figures aside, the country’s regional economic dominance seemingly points to one thing: You can sell anything worthwhile in Nigeria.

However, going deeper, with the limited available data, into our current economic realities paints a less flattering picture of Nigeria’s total addressable market (TAM). In piecing fragmented data together, we begin to garner bespoke insights, depending on location, sector, and earning bracket, to make educated guesses at best.

Firstly, we know that Nigeria has an adult population of 105.8 million, and a working population of 64.4 million in 2021. Estimates from GSMA intelligence place the number of unique mobile subscribers at 99 million and 163 million smartphone connections. Compelling right?

You’d think so until you realize that 85% of Nigeria’s workforce either engage in household agriculture or other non-farming household enterprises which are usually subsistence ventures. A further 84% are in the informal economy providing services like plumbing, bricklaying, and other relevant jobs.

Nigeria is not alone in posting massive numbers for the informal sector, but unlike other countries, such businesses seldom blossom into huge job and value creating businesses that boost the entire economy. Rather, these businesses face diverse problems that could have been saved by access to fresh capital.

One of the surest ways of accessing capital is access to loan, so it goes without saying that there’s a strong link between access to loans and strong economic growth in any country. Summing up what brilliant writers have stated in the past, credit increases the number of participants in the economy, and it fosters economic expansion.

The size of the Nigerian market

You can easily draw parallels between Nigeria’s loan market and Nigeria’s telecoms market when you take a trip down memory lane. In 2001, SIM cards cost roughly N20,000 which, in today’s devalued naira, would amount to ~N100,000. Its cost made it prohibitive, but slowly, the adoption barriers reduced and SIM cards cost little or nothing today.

In 2021, Airtel and Nigeria generated over $5 billion from 128 million mobile subscriptions and a host of other related services. The telecom sector’s contribution to the country’s GDP has been increasing on a yearly basis.

Today, Nigeria’s credit market has a high barrier to entry. Banks rarely lend to people without millions in their account, and innovative fintech companies looking to play in the lending space have an uphill task ahead that spans finance, technology, and data.

But what would the market look like if these barriers were removed? Considering that loans can aid business expansion, as well as coping with job losses, or helping to improve living standards,, it’s highly probable that credit would have a lot more impact than the telecom sector in Nigeria’s economy.

Several players in the fintech space and even commercial banks have gotten a whiff of this potential. Even more significant is the fact that platforms like Lendsqr, are coming up with innovative solutions and infrastructure to power several lenders in Nigeria. In 2020, Evolve credit listed up to 30 digital lenders in its lending marketplace.

A plethora of offerings

So far, Payday lenders are stealing the limelight in Nigeria’s consumer credit space. In 2020, Carbon and Fairmoney, two of Nigeria’s biggest lending providers, disbursed N62.4 billion worth of loans. When you factor in other huge players like Branch or Aella credit, we could be hitting up N200 billion. Nearly all these lenders follow the same process, offering loans starting from N5,000 that could get up to N200,000 when the borrower repays consistently.

Following some interesting policy directives, some of Nigeria’s biggest banks have also created Payday offerings with more competitive interest rates. GT Bank’s QuickCredit, for instance, offers year-long loans at 1.33% per month. Access Bank’s Quick Bucks app adds an extra layer that allows you to buy smartphones at a 13.5% interest rate per annum.

However, Payday loans only help with economic shocks for individuals, but do little to help businesses expand. Small business financing would be needed at this point, but a huge gap still remains in Nigeria.

SMEs account for 90% of all businesses in Nigeria, but these businesses do not get adequate funding.. Apparently, most of these entrepreneurs get funding from their savings or from friends and family.

Few companies are playing in this stuffy, fragmented lending space. Companies like OZE, Lidya and Payhippo are rising to the challenge, but there are still some issues to address. In a nutshell, SME financing still has a long way to go.

The size of Nigeria’s credit gap

Payday loans

Lendsqr’s informal surveys show that the salaried worker takes an average of N23,000 in loans 6 times a year. If 50% of Nigeria’s 64.4 million workforce take a loan of N23,000 six times a year, that will amount to N4.4 trillion.

For this to happen, lending companies would have to work hard to provide payday loans to more than the safe bet of salaried workers to small business owners who have displayed credit worthiness through unusual means. One of that could be consistency in filing tax returns.

Smartphone financing

Year by year, the average cost of smartphones are falling in Nigeria. From $216 in 2014 to $95 in 2018, smartphones are becoming more affordable, but out of the reach of most Nigerians who earn a minimum wage of ~$70.

If one-third of Nigeria’s workforce are able to finance a $95 smartphone with a replacement lifespan of three years. At N500 per usd, 21.4 million Nigerians borrowing N47,500 each to get a smartphone will amount to N1 trillion.

Laptop financing

Like smartphones and SIM cards, laptops have become more important in recent years. The digital age has increased the demand for laptops as more roles and services become more computer dependent. This stands alongside Nigeria’s youthful population which is over 100 million.

In recent years, prices of laptops have gone shockingly high, and a minimum laptop with decent enough spec for a student learning Software Engineering on Altschool or Udacity would cost around $600 (N300,000).

If just 10% of Nigerian youth can access laptop financing, that would amount to N3 trillion annually.

Rent

The housing market in Nigeria is quite tough. Especially in its major cities where rent needs to be paid in bulk for one year or two years. Despite regulations that prohibit asking for more than one year, s0me real estate professionals prefer to collect bulk money upfront.

If 40% of Nigeria’s 105.8 million population gets rent financing at N400,000 ( Would get a studio apartment in Lagos or a 2 bedroom flat in Ile-Ife), that would be N17 trillion annually.

Vehicle financing

The market for vehicle financing is huge when you consider that there are only 11 million cars in Nigeria. That’s 57 cars for 1000 Nigerians. The current state of inflation are driving vehicle prices up, and players like Autocheck have to infuse other elements into its process that greatly drives up costs for its vehicles.

Compared to South Africa with a ratio of 174 cars per 1000, Nigeria still has a long way to go.

Assuming that they would be primarily used vehicles at a low end of N2m per car, changed every 4 years, and are looking at a N43 trillion market spread over the 4 years.

Asset financing

After renting an apartment, you’d need to purchase appliances to help live a decent life. From deep freezers, to fridges, to TVs and air conditioners, the market for asset financing is a potential gold mine.

Every couple of years, these devices increase in price, but if we set a cap of N500,000, we can arrive at something to work with.

If 50% of Nigeria’s 43 million households receive asset financing, that’s a N10.7 trillion market.

Education

With half of Nigeria’s population under 18, Nigerian households, and sometimes individuals would need to spend a decent sum on funding their education. If 40% of Nigerian parents can receive funding of N300k that amounts to N12.6 trillion.

Mortgage financing

Everyone wants to own that serene and peaceful place they call home. One without the troubles of rent and a landlord. If we strictly follow data, then 22 million Nigerians do not have the housing they need.

Nigeria’s housing gap is huge. A clear reason is its massive population growth. While the government pledged to add 1 million low-cost affordable housing in 2019, it wasn’t enough to meet a 5 million strong demand. The country’s housing deficit is now well over 20 million.

In 2020, formal housing production stood at 100,000 annually, but if housing construction doesn’t get to 1 million, this figure could worsen when Nigeria’s population doubles by 2050. Affordable housing loans could come to the rescue.

Providing a mortgage to 1 million Nigerians at N10 million each opens up a N10 trillion market.

SME financing

As stated earlier, SMEs are the lifeblood of nearly every economy across the globe. However, business owners have to struggle to provide power, skill training, goods security, and money to run the business.

A loan of N600,000 would make the world of difference for these businesses, and if just half of 41.5m SMEs get this, that would amount to N12 trillion SME loans per year.

A N109 trillion lending gap!

Adding up all the sectors, we would see a N109 trillion ($263 billion) chasm for lending annually which has gone untapped. This amounts to 25% of our current GDP. With technology, data, banks, and the right execution, fintechs can close these gaps and provide much needed relief to several of Nigeria’s ailing sectors.

And the benefits to the economy would be massive; taking the multiplier effect, we expect a 10x impact, which could add N1,090 trillion ($2.6 trillion) to our GDP, which would effectively triple our economy. This would create millions of jobs (Think expanding SMEs hiring more people), lending companies would make a fortune, and the government stands to gain massive revenue from employee and corporate taxes.

Disclaimer

Comments expressed here do not reflect the opinions of vanguard newspapers or any employee thereof.