How to survive financial turbulence

As the curtains draw to a close in 2022, the likely depth and duration of the economic downturn remain unclear. Inflation is coming for everything we hold dear and it seems scary times are up ahead. What’s a turbulent financial environment you may wonder? Financial turbulence is a condition in which asset prices, given their historical patterns of behavior, behave in an uncharacteristic fashion, including extreme price moves, decoupling of correlated assets, and convergence of uncorrelated assets.

Wherever you are in the world, the current inflation and its impact on the global economy are dominating headlines. It’s likely dominating your life, too. Periods of financial turbulence relate to heightened uncertainty and volatility in financial markets, and some of those periods can trigger financial crises. Nigeria’s economy is even worse hit and has been struggling to recover fully from the economic recession it is currently in.

Nigeria’s inflation rate surged to 20.52% in August, the highest since September 2005. The inflation figure rose from 19.64% recorded in July according to reports from the NBS. The new inflation rate raises concerns in Africa’s biggest economy, placing pressure on the apex bank to increase interest rates. The report added that food inflation rose to 23.12 per cent in August 2022 on a year-on-year basis, representing a 2.82 per cent increase when compared to 20.30 per cent in August 2021.


How Can Lending Help?

Research has shown 6 survival and recovery steps in a turbulent financial environment which include;

  • Cash is king.
  • Manage costs.
  • Deal with debt.
  • Managing risk in uncertain times.
  • Prepare for growth.


Cash is king

This is the perfect breakdown of how lending helps. Understanding that in the current market, cash is a key concern for everyone and every business. When inflation occurs, the demand for credit and loans increases.

A lot of businesses have crumbled due to the currently harsh business climate and low purchasing power of Nigerians. Amid these challenges, more businesses need credit facilities to stay afloat but have been starved of the needed funds to do so. This means there’s a shortage of cash flow so where do people and businesses turn to? Fintechs such as Credit Direct is helping fit the bill perfectly with unsecured loans for all; non-salary to salaried earners and even SMEs.

There’s a misconception about how lending during inflation has only negative consequences however let me clear this up. Inflation actually can benefit borrowers. Now if you are a borrower and inflation occurs while repaying, the money you borrowed will have more purchasing power and thus more value than the money you owe. In other words, the money you borrowed and used was worth more than what your lender is getting back, even if on paper it is the same principal and interest amount. This benefit will be better enjoyed with longer loans.

This of course doesn’t take away from the fact that inflation will have both negative and positive impacts on borrowers. And although you can’t do much about where the economy is at, there are things as a borrower you can do to get the best loan options. Improving your credit score, looking at several lenders to find the best option, and showing all of your income sources can help increase the quality of your loan and the loan amount, regardless of what inflation rates are.

In subsequent articles, I’ll further break down the other survival points of a financially turbulent environment. Till next time, don’t forget that for all your lending needs you can trust Credit Direct for the absolute best service.

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