Speaking the Language of Success: How we created a world class brand at Credit Direct

Speaking The Language of Success: How We Created A World Class Brand At Credit Direct Limited

In my opinion, French is arguably the most sensual language in history. The sheer finesse in the pronunciation of each word in the French language is amazing, the feel is exceptional and its very exciting to watch people speak it so fluently. The French accent is so distinct that it is not difficult to identify a Frenchman or woman when they speak. The exciting command and thought-provoking usage makes you just want to understand and learn how to speak French. The language is so versatile that its diction and words are borrowed by so many other languages. While French language appeals to the senses, it also comes with a powerful undertone that pulls you to any conversation when you hear it. In addition to all these qualities, the French language is also simple to learn and master. French language is among the most acceptable and most spoken language in the world. The French brand communicates confidence and an aura that inspires a lengthier conversation or relationship.

CLOSER HOME

Credit Direct Limited, over the years can be said to have positioned herself as the French of the Consumer finance lending industry. We have brought out the best of the industry, setting the tone for new entrants and making the space very competitive. We created an industry that has over time served a lot of people who never believed it was possible to get prompt services and solve customers’ financial problems so rapidly and with the speed of light.

Our Language – “Sharp! Sharp!!” is simple, easy to remember and clearly understood by all our customers. When we first started, we gave the promise of getting loans within 24 hours when it sounded very unrealistic to a lot of people, but the doubts only made us more determined to succeed in this noble business journey. This we believe is one of the major strength of our business, the fact that we keep our word, we gave a promise and till date its remains our bond.

Our Simplicity – “No Collateral, No Guarantor, No Account opening, No pre-liquidation charges”. These are core promises we communicated to our customers. Although a lot of people thought it was impossible to lend on these terms, and we have proved that simple lending terms will always fare better than complex and strict lending terms. We introduced a different and simple approach to lending and today, it has become the gold standard in the alternative lending industry.

Our Undertone – “Speedy Funds, Convenient and Transparent” is direct and true to its promises. While the catchy phrase is being used loosely in financial parlance in recent times, many companies unfairly bury their additional charges when selling a loan to their customers. At Credit Direct, loans are delivered without any form of “Hidden Charges” which has endeared customers to us over time. We do not see customers as opportunities to exploit rather we see our customers as individuals to partner on a long and mutually beneficial financial journey by providing fast and reliable financial services at a fully disclosed fee.

Our Precision and Perfection in Service Delivery

All these “French” qualities in Credit Direct are the little things that sets us apart from our competitors. This differentiation can only continue to exist through precision and perfection in our individual and overall service delivery to our valued customers. Precision and perfection can only be achieved through innovative works directed at improving customer experience and satisfaction. An efficient lending platform, best in class talents with local and international experience, efficient and effective customer service, top of the range customer experience and above all a world class work environment. The average Credit Direct Staff takes each task with total dedication and focus to ensure the output is exceptional, little wonder how we have badged many awards including the Most Innovative Consumer Finance Lending Company of the year 2018 by Business Day and the Best Social Impact Finance Partner Nigeria 2019 by Capital Finance International. Awards befitting of a pace setter.

Ways we ensure we keep up the “French” in us at Credit Direct.

  1. The First step is employees’ sense of belonging to the company. Each staff possesses a deep sense of ownership and understanding of the business and of their responsibility. We have an “employee-owner” mindset, so we approach every task knowing we are working for individual and collective goals. This mindset helps us achieve more with less.
  2. Next step is handling issues/ Challenges professionally. Now this is our strongest point. Because we are in a service industry, we are aware that a lot of times there would be issues and challenges from customers and are therefore prepared to handle them with courtesy and strong promise of resolution. Where the promise has elapsed, we are on hand to ensure the issue is resolved, nonetheless. Our customers are our Kings, so we as Kingmakers ensure to treat our Kings nicely.
  3. Imbibing the Credit Direct culture. An average Credit Direct Staff is energetic, passionate, Caring, Trusting, Innovative, and a Team player.
  4. We perform our duties diligently- it is said that “a task done well 100 times becomes a habit” and habits requires little brain to execute. Efficiency and diligence have become our habit, and this helps us achieve a lot in terms of productivity.
  5. The fifth step is self- improvement- when you are happy with yourself, you are more productive at work and in your personal life, we create a robust work life balance for our staff with a top of the range relaxation lounge in the building and a complete gym for staff after work hours. We have built a team of healthy workforce that are ready and eager to do more anytime when called upon.

THE CREDIT DIRECT “FRENCH”

We are passionate about our customers, so we ensure to do the following

Complete disclosure to customers – When it comes to customers, there is no such thing as over-communication for us, we thrive on giving our customers the most up to date information on their loans and investments, with this, we keep them fully abreast of what is going on, what is new and what would soon change.  The amount of communication is not so imperative as the timeliness, its context, and its ability to clearly identify the value addition to the client. In a world of constant connectivity, your ability to cut through the flood of subpar information with quality and timely answers goes a long way.

Foster Service Culture – built on elements of leadership principles, norms, good work ethics, vision, mission and values. Culture is the set of overriding principles according to which management controls, maintains and develops the social process that manifests itself as delivery of service and gives value to customers. Once a superior service delivery system and a realistic service concept have been established, there is no other component so fundamental to the long-term success of a service organization as its culture.

Ensuring Service Quality– These includes strategies, processes and performance management systems. The strategy and process design are fundamental to the design of the overall service management model. Helping our customers meet their needs and supporting them in the pursuit of their overall Peace of Mind, is the foundation on which we thrive.

Customer Experience includes elements of customer intelligence, account management and continuous improvements. Perception is king and constantly evaluating how both customer and end-user perceive service delivery is important for our continuous collaboration. Successful service delivery works on the basis that our customers are a part of the creation and delivery of the service. This we ensure to do to keep our customer special.

Always remember that premium, precise and perfect service delivery is what a customer needs to stay with you, always give your best  and success will be at hand.

Joseph Osodi, writes in from the desk of the Head of Brand Marketing and Communications.

For Quick Loans, visit www.creditdirect.ng and chat with our sales consultants.

Credit Direct as a Social Enterprise… The Brand.. The Persona

Credit Direct as a Social Enterprise- The Brand, The Persona.

Human-to-human connections are the heart and soul of a business. Put simply, business occurs when an individual or group of people deliberately provide services that eases the life of another person in a profitable manner. A business is about solving problems, alleviating pain points, creating a rapport with consumers, and providing delightful customer experiences. Profit only comes when a sound business model is matched with a positive customer experience. At Credit Direct Limited, the knowledge of what business is truly about is what wakes us up daily, motivates us to join the early morning rush, sit in the road rage patiently with a simple purpose to arrive at the office as early as possible to serve our esteemed customers.

Our passion to serve is what propels the sales team to beat the torturous weathers of Sokoto, Gombe and Katsina States and meander through the slippery footpaths of riverine areas in Bayelsa and Rivers States in search of more Nigerians to solve their financial challenges. The joy and amazement on the faces of customers when they get credited with the requested loans within few hours is what motivates our management to workday and night strategizing new ways to make the business meet its promise and deliver a phenomenal experience to customers. Even though the Credit Direct team may get held up in traffic for long hours in Lagos, travel across the country to visit stakeholders or put themselves in harm’s way walking the streets up North seeking another customer to assist, our duty to serve and care for our customers brings fulfillment to everyone in our value chain.

At Credit Direct, we are a long chain of professionals, bond together by one mission – we enable Peace of Mind. The fact that majority of Nigerians still find it difficult to access credit at the point of emergencies motivates us to think deeply about how to solve this critical socio-economic problem. There are the loopholes to fill, there are openings to fix, there are needs to meet, and fortunately there is Credit Direct to meet those needs.

The Credit Direct Brand is all about meeting the needs of those who were uncared for and those with genuine need for money but could not be accommodated not because of any fault of theirs but because the neglect was widespread and deep, because the divide between the affluent and mass market was deliberate to ensure there is always a second class category whenever it is decision making time. Credit Direct continuously disrupt the space and does what a lot of people including experts believe and consider “IMPOSSIBLE” to achieve, what industry legends regarded as a definite loss of revenue and reputation if ventured into. In fact, when we started, 6 months our proposal stayed in the hands of top business executives and government officials and the verdict was “try this at your own peril” why was that the narrative and how did we change the narrative to a winning one? The answer is simple, because the idea was not for “profit” or “loss”. It was not set up for the Balance Sheet figures at the end of every financial year, it was not set up for big board meetings and extravagant Annual General Meetings, it was set up to put smiles on the faces of salaried employees who are real economic actors in the theatre called Nigeria. To bring peace and fulfilment to a father whose child laid on the sick bed and would not be attended to till he makes a deposit. For the mother who toils daily yet cannot afford to pay the fees of the child and he is driven from school on the first day of the third term examination just because her salary had not yet been paid. For the hardworking civil servant whose rent is due, and the landlord has pasted the eviction notice with a short timeline. Now those are the real heroes we were born to help, and yes, we have created a long list of promoters across territories who never knew their potentials till they got their loans on the same day and sometime instantly.

I can never forget the story of a dear customer who came into one of our branches in the North, crying and sobbing that his only son lies sick on the hospital bed and needs to make a payment for immediate surgery or else he would die, he begged and pleaded for a loan, we sat him down and comforted him, gave him a form to complete and requested a few documents to complete the loan request process which he hurriedly left to get the requested documents. He returned in 2 hours and after submission, he sat there waiting, obviously with tons of scenarios playing out in his mind, he paced all round the banking hall muttering prayers under his breathe and at about 3:45pm same day he got an alert, he screamed so loud it caused a stare and with a happy heart, he knelt down in appreciation. For us that was the goal, that is satisfaction. We had fulfilled our purpose that day.

Credit Direct went unchallenged in the unsecured consumer finance space for over 4 years (April 2007 to December 2011) and recognized as one of the best performing companies across all business performance indicators. This is a clear evidence to what a company that puts customer satisfaction before profit can achieve in a world of business previously considered to be a one-way ticket to bankruptcy. Our success has inspired others to follow in our footstep, increasing competition in the unsecured lending market. We encourage competition because for us the idea is not to monopolize the market but to solve a socio-economic need. So, while others try to outcompete us, we expand our customer base simply by caring and connecting deeper with our customers. We organized stakeholder’s forum, engagement sessions, understood our customers better and then made heavy investment in Corporate Social Responsibility. We upgraded schools and provided adequate learning tools for students, we provided free health checks for our customers, we trained our customers (Teachers and professionals) on entrepreneurial skills and service, we granted scholarships to students who excelled in their studies as a motivation to others to ensure that they level up and to show that there is reward for hardwork. We provided learning materials and sponsored people living with Disabilities in our own little ways. We sponsored events and projects that help create value for those who truly need our support. Doing all these bring smiles to our customers and we look forward to doing even more as each year pass by.

While we invest in our customers, we are also particular about our staff “our greatest assets” who ensure the brand is fully expressed along the fabric of the country from North to South, from East to West, through the shore lines of the Niger Delta to the Rocky terrains of the north. Indeed, we have the best team ever. The fact that you can leverage staff who are promoters to sell your products and exceed the needs of the customer gives you double assurance that you have built a business and a product that is wholesome.

Our unique way of doing business has endeared us to millions of customers around the country who are the heartbeat of the Credit Direct family. We have created a brand persona that resonates within the industry, we just don’t grant loans we enable PEACE OF MIND.

Our customers are the stars in our epic story, we are only the supporting character.

We are Credit Direct Limited, Nigeria’s Number One Unsecured Consumer Finance Lenders.

Joseph Osodi writes in from our Brand Marketing and Communications desk of Credit Direct Limited.

Do you need quick loans? Do you have an emergency and need a loan? Do you need online loans in Lagos? Call us today on 01 4482225 or send an email to CDLmarketing@fcmb.com.

Rethinking Your Approach To Customer Experience.

Recently there has been an upsurge in the general buzz around this phrase “customer experience” and most corporates across the globe including the Nigerian market are clamoring to get on the band wagon even though the greater number hardly know in which direction it is headed. While there is an increasing agreement that customer experience has become the differentiating factor among brand products and services which increasingly seem more generic, very few organisations actually realize what it is or how to arrive at a good customer experience. 

Customer experience as we know it today is an evolved hybrid of several diverse disciplines and an epiphany from post purchase services and customer support to the frontlines of customer engagement. It is a concept that has grown over several decades from advertising market research in the 1920s through the 1970s to other customer focused initiatives like Total Quality Management (TQM) and the idea of customer satisfaction which came to prominence in the 1980s. These were initially measurement frameworks but progressively made the transition from product quality to value addition and paved the way for process engineering and more value initiatives in the 1990s such that increasingly attention shifted from customer satisfaction to customer value. Over time, the idea of capturing the voice of the customer took deeper root entrenched in the technological advancements of the 2000s which saw the rise of the Call Centers that offered the insight the voice of the customer could provide. This was particularly welcome as most companies sought to move away from relying on their own perceptions or theories about customer needs, desires, and feedback that left them tone-deaf to the voice of the customer. This voice of the customer was further refined with the emergence in 2003 of the 11-point scale Net Promoter Score (NPS) that subtracts brand “detractors” from brand “promoters”. The NPS made the erstwhile complex data easier for executives to understand and being so much cheaper than the complex metrices available at the time was greatly appealing and acceptable. Customer Experience as a discipline was then further entrenched when in 2011 the Customer Experience Professionals Association (CXPA) was founded. Today the concept of Customer Experience has transcended any one field of endeavor and is increasingly seen more as a company’s end-to-end interactive relationship with its customers. 

Customer experience, as the phrase connotes, is therefore the actual interaction between a brand and its customers and though frequently confused with brand experience referring to the general impression of a company’s products and services, customer experience goes beyond mere impression to actual participation. These two concepts are so intertwined that for many they have come to mean one and the same thing however while an impression could even be formed from third party information and without any actual involvement, customer experience is the tangible and even emotional journey that provides that bridge from a customer’s expressed need to achievement of the customer’s ultimate goal. This journey may last as long as getting an entire education or be as brief as quenching a thirst but, in each instance, how the customer feels in the course of the interaction defines the type of customer experience delivered. Over the years the desire to deliver the best customer experience has led to bloated 

Call Centers which ultimately became redundant with the ascendancy of interactive technology and do-it-yourself ( DIY) service platforms while for others their attempt to deliver the all elusive perfect experience has spiraled into technology addiction because they forget that technology in itself is just a tool which in the long run will only serve up a cold and lifeless package to the customer. This kind of service may initially be welcomed for its convenience but in the long run in spite of its attempts with chat bots bearing names of our neighbors and friends will also be detested for its inability to resound with the basic human need for warmth and empathy. It is therefore obviously counter-productive to serve up a generic “customer experience” dish because each customer has a unique perspective on their experience which begins the moment they engage with a brand, grows as they interact with its various touch points and lasts for the duration of the relationship. The traditional touchpoint-oriented, metric-driven way of thinking about customer experience however has a large blind spot which can only be fixed by taking an end-to-end view of the customer journey and the importance of understanding how interdependent individual touchpoints are along the journey. Many organizations are unable to evolve from the mental model of ‘having’ customers to ‘being’ a customer and so they fail to provide value that addresses the ‘customer need’. 

The focus of any company seeking to effectively deliver customer experience should therefore be on addressing customer needs not improving a process in order to force it on the customer. The bedrock of a pleasant customer experience consequently lies in the culture of the people; the purpose behind the brand; the very foundation of how an organization conducts its business; their DNA, if you may. A case in point is Credit Direct Limited where the culture dictates that we embed current customer insights into every aspect of our operations by listening to and acting on the customer’s voice. The first very step is at the front line, where employees close the loop with customers on direct feedback, then using that insight we continuously change the way the process is designed or executed to suit the customer. The questions we always ask are: Exactly who are our customers as individuals? What motivates them? What do they want to achieve? What are the fundamental causes of satisfaction? Overall, every effort is made to personalize communication during every important phase in the customer’s journey. 

To maximize customer experience, companies must shift perspective from touchpoints and focus attention on the more important issue: the customer’s end-to-end journey – an aggregate of the whole. It is logical to think in terms of touchpoints—the individual transactions through which customers interact with parts of the business and its offerings however these often prove to be tasteless when taken in silos, only by looking at the customer’s experience through his or her own eyes—along the entire journey taken—can you really begin to understand how to meaningfully improve performance. It is those companies that provide the customer with the best experience from start to finish along the journey that can expect to enhance their customer experience. As the good book says, better is the end of a matter than its beginning; It is the ultimate feeling you leave the customer with that truly matters and not one individual rung on the service ladder.

Achia Tor-Agbidye writes in..

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Defining Leadership: What It Is; What It Is Not.

Credit Direct Limited

Defining Leadership

What really is leadership? I can provide several definitions from great authors and leaders, but I will like to work to the basics, looking at its root. Leadership is ‘leader’-‘ship’, i.e. the ship of a leader. What is a ‘ship’? It is a means of transportation from one place to another. So, what does it mean to ‘lead’? The noun meaning of ‘lead’ according to the Merriam-Webster dictionary is to be the first, to be in a position of advantage, to be in the forefront or ahead, to be top or take initiative and the verb meaning of ‘lead’ is to serve as a channel, direct a course or to guide on a way, especially by going in advance or forward. A ‘leader’ on the other hand (hold on, before you reach for your dictionary), simply put, is someone who satisfies the above context. To piece the definitions together, leadership means:

  • the means of moving ahead
  • to direct or chart a course to be the first or to move forward
  • to serve as a channel to place others in a position of advantage

Now that we have established the meaning of leadership, let’s discuss what leadership is and what it is not. I will use the elimination approach and start with what leadership is not.

What Leadership Is Not

  • Leadership is not a reward for long service – While consulting for several companies in the past, I have seen this error made severally. There seems to be an assumption that since an employee has been in an organisation for a long time, the logical next step is for them to lead. Long service, although may be an advantage to a leader, it is not a requirement for leadership and should not be the sole reason for rewarding people with leadership role.
  • Leadership is not a special trait that only a select few possess. It is not inborne; it can be developed. Yes, the charisma may come more easily for some, but leadership is more than that. There are training courses for leadership, you can be mentored/coached to lead, and you can learn to lead from other great leaders. Leadership is not for a select few, anyone can learn to lead.
  • Leadership is not just about influence. That you have great charisma and can sway people with your words or style or get them to submit to you doesn’t necessarily make you a leader. Influence is beneficial in leadership when combined with other attributes. Influence alone does not make you a leader. While I am on this table, let me shake it well, that you are a social media influencer does not make you a leader. We shouldn’t misconstrue these things.
  • Leadership is not superiority; it doesn’t mean you are the smartest person in the room. Superior talent, skill, network, qualification, etc. does not make you a leader. That you are a leader, does not mean you are superior – you do not become a leader because you are superior neither do you become superior because you are now a leader.
  • Leadership is not a personality type. No one personality type is best for leadership. Your being introverted or extroverted does not place you in a better position to be a leader.
  • Leadership is not about instilling fear in people. While good leadership comes with reverence, the leader does not start out with that objective. In fact, fear and reverence are two different things. When people flee at your presence or tremble at the thought of you, it is no longer leadership!
  • Leadership does not mean been exalted, somewhat like been on a pedestal where you cannot be reached, addressed or even corrected. Leadership does not mean closing the access that others have to you. It doesn’t mean you are above the law.
  • Leadership does not mean using others to achieve your goals. I have saved this one for last because I know some people will raise their eye brows here. You thought leadership was about setting goals and marshalling the team to achieve them. That will make you a good manager, not necessarily a leader. Sorry to burst your bubble.

I have identified what leadership is not so that you can eliminate them from your mind set and begin to rethink leadership.

What Leadership Is

Going by the definition of leadership provided in this article, I will use the analogy of the ship. I will liken the ship to the organisation or entity, the captain to the leader, the people on board the ship to the followers. There are three primary responsibilities that every leader must excel at:

  1. Clarify the Destination: I consider this the most important job of the leader because every other activity carried out by the leader revolves around this. If the vision is not properly crafted and communicated, the ship will be headed nowhere. There will be confusion, resources will be wasted – you don’t know what’s needed or how much is needed, etc. A properly crafted vision must be one that is shared and one that advances the collective. It may emanate from the leader, but everyone on the ship must buy into it. Otherwise, one follower will reach for one sail to increase the speed and the other will be trying to make a turn at the same time. What you have is chaos, and eventually, destruction of the ship. The destination or vision must be clear, shared and well communicated. Clarifying and communicating the vision also helps ensure you have the right people on the ship. The people on the ship are not taking a jolly ride, they must be people who also desire to go to the planned destination. It shouldn’t just be the leader’s vision, it should be everyone’s vision.
  • Chart the Course: There is a Yoruba adage that means, there are several entry points into the market. When a clear picture of the destination or vision has been shared, the leader must chart the course to the destination. How do we get there? in what state do we want to get there? when must we get there? Craft a strategy, develop a plan to get there. The plan must be clear; clear enough for everyone to grasp it without you being there. It shouldn’t be your plan; it should be our plan.
  • Sail, adjust, sail: Once the vision is clear, and the strategic plan has been adopted, all that’s left is to sail. Harness the collective capacity of the people and sail. Sail according to plan, sail towards the vision. The winds will blow, course-correct and continue sailing. If circumstances make you lose sight of the vision, review the vision now and again to strengthen your focus and ignite passion. Keep inspiring the people to keep their gaze on the vision and fully apply themselves and you will arrive the destination soon enough.

Three simple responsibilities, you may say, but the establishment and sustainability of organisations rest on the leader’s ability to skilfully execute them. Successful leadership requires trust, heart and grit – I call them the pillars of leadership. I will talk about them in the next publication.

Are you currently in a leadership role? Do a quick self-assessment on how well you are faring on these responsibilities. Also check yourself against what leadership is not. If you see areas that you are doing well, give yourself a pat on the back. If you identify areas of improvement, pen them down and seek ways to close the gap. We need more leaders. Leaders who will help us see a new horizon, who will skilfully chart the course despite our diversity and advance the cause of our organisations.

-Oluwatosin Oyebola

Do you need Quick Loans online? Do you need Loans without Collateral? Are you stranded and you cant get out fast? Call us today for quick loans within hours, No Collateral, No Guarantor, No Account Opening, No Pre-Liquidation Charges. 01 4482225 or 0700CREDITDIRECT.

Customers Are Not Interested In Your Company, Only Their Satisfaction.

In today’s article, we focus on the only employer of labour – the customer. It is not news that all economically productive Nigerians (paid and unpaid labour) are engaged within the context of a defined arrangement to render services or deliver products. At the extremes, house-wives are engaged within the context of a family (delivering service to the home), and politicians engaged within the context of a political party and constituencies “to serve” the public’s interest.  The organisations that demand our time and service in exchange for wages or other forms of compensation are either profit oriented or not-for-profit oriented. Further classifications of for-profit organisations range from Corporations (large corporates) to sole proprietorship (the classic one-man business) while not-for-profits include Non-governmental organisations, Foundations, Government & Government-related establishments. While there are differences among organisations’ arrangements, businesses and structures; there is a unifying element called CUSTOMER and there is also a consensus that the customer is important. Even the average Nigerian politician now know that electorates “the politician’s customers” are important.

How Important is the Customer?

There is a popular saying that “the customer is king”. But is the customer really king? Let us quickly test this with a few questions: Have you ever got stuck on an idea because you are unsure if the service or product to be produced will sell? Have you ever launched a product or service you thought would be successful but didn’t sell enough to break-even let alone make a profit? How about business promotions, incentives or loyalty programs offered that you were sure will move the market but did not? Ever wondered why you keep losing customers to competitors, or outcomes of several planning sessions, professional advice and consulting-spend that did not make significant difference to sales nor profit?

The answer to all questions above and many more is the psyche of your CUSTOMER! The interesting thing is that the handlers or owners of organisations are worried about making their products or services appealing to customers because buying decisions positively connect with organisations specific outcomes such as a mandate, sales target, revenues, profit. However, the open secret is that customers are not interested in the organisations nor their financial performance. On the contrary, organisations are dead without customers.  Therefore, it is safe to say that the customer is not only king but the life blood of every business.

The Pitfall to Avoid About the Customer

Many businesses (small & BIG) echo their customer focus and initiatives for customer satisfaction, but unfortunately, they plan and implement in the wrong direction. The cause of these is closely related to the fact that the hearts of many organisations (people, process, systems, structure, rewards, etc.) remain rigidly product-centric, channelling attention and resources towards developing products or services without careful attention to consumers’ expectations. Most organisations therefore live in an alternate reality to their customers, holding an assumed belief of customers’ perception of their products and/or services as true when many times it may be wrong. Organisations that enforce their commitment to customer satisfaction from this standpoint will continue to lose large numbers of customers in the increasingly competitive marketplace.

The Journey to Satisfy the Customer

To demonstrate how the journey of customer focus should take-off, let me share two examples:

  1. A baker who specialized in baking bread located his bakery in a densely populated settlement in Ibadan. The baker started his bakery believing he knew what the customers will want in a bread, the usual he said, “competitive price, nutritious bread evidenced in taste, relatively heavy weight, attractive packaging and of course with NAFDAC registration number”. Alas, while the business owners’ perceptions are all lofty, after about a year in business, the baker learnt the sad truth that what he initially thought was important to the customer turned out to be the least of their priority. While speaking to a good number of his customers he learnt their true priority. They echoed to him, “what we really want is a bread with inner space that can be loaded with protein – bean cake, eggs (this clearly contradicts the baker’s initial perception that customers wanted a relatively heavy weight bread), and we buy the tallest bread within the same price range on the shelf (neither weight nor width mattered, only length!). Disappointed, he said to himself, if only I knew this earlier, my focus would have been sharper and my sales, better!
  2. A Lagos & Abuja based consulting firm named Management Transformation conducted a survey on factors that influence customer’s choice of Quick Service Restaurants (QSRs) in Nigeria. Findings showed that while restaurant owners held ambience, variety of dishes, prices and other factors in high esteem, customers are all about the old faithful’s – quality of food and service, as they represent the most important factors to customers’ decision making on a restaurant choice.

So, from the above examples, the first simple principle to being customer focused is to know your customer. Many have been in businesses for years and they truly don’t know their customer. In-fact; you, your friends, family, neighbour, your average church or mosque members may not be the definition of your customer. Hence, wholly adopting their wants and suggestions can be damaging to your customers’ satisfaction. Imagine the irony of asking your grandparent on the type of a mobile phone your spouse will like, even with the best of intentions, it is unlikely to be on point! Therefore, it is fundamental that organisations begin to re-think approach to customer satisfaction and seek ways that guarantees competitive edge. The most effective way is by adopting the business specific customer-centric mindset, starting with a clear understanding of your customer.

The second principle in this article on the journey of being customer focused is another simple and obvious principle which can be picked from the examples above. If you want to know how to serve your customers? Ask them. Many businesses embark on unnecessary projects and schemes aimed to impress the customer but end up adding no value to the business and sometimes destroy value. Imagine a company that felt an internal push (not customer) to rebrand and successfully changed a product wrap that the customer still wanted. The result was a decline in sales contrary to the intention.

The third principle I invite readers to note is that when your customers finally speak to you, take it as being entrusted with the life blood that the survival of the business is hinged on, and don’t betray their trust. Don’t be arrogant, act on your market’s feedback because if you do not, others will and remember the customer is not interested in your company but relative superior satisfaction.

Businesses (existing and start-ups) that can embrace the above principles will do well in their customer satisfaction journey and in-turn have their business generate better sales and profitability. Examples abound of businesses and industries that are listening to their customers and acting on the customers’ response. Industries examples include the Nigerian Fashion & Music Industries that have continued to evolve and currently being shaped by entrepreneurs who listen and act on customers’ and markets’ request.

Businesses that will not embrace the customer centric principles have unknowingly adopted a strategy tagged “picking up coins in front of a bulldozer”, you may have momentary gains, but such businesses are unlikely to exist profitably in the long-run. Let me leave business owners, intrapreneurs and aspiring business owners with a few questions; Who are your customers? How are you presently pursuing or plan to pursue your customers satisfaction? Are you getting ahead and getting the results you want? What needs to change? Based on the principles described in this article, are you ready to make the change? These are the relevant questions I invite readers to reflect upon and provide objective answers to because change cannot occur until you realise the need for change by acknowledging the limitations in your present situation.

Please send your comments and answers on www.creditdirect.ng/blog. You can also drop comments on our social media handles @creditdirectltd

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Why Interest Rates Remains At Double Digit In Nigeria.

By Emeka Ucheaga

One of the greatest financial challenge for businesses and even the federal government of Nigeria is the high cost of credit in the country. Prime lending rate which is the rate at which banks lend to the most credit worthy customers has remained persistently high in Nigeria since the late 1980s. In fact, the last time Nigeria ever enjoyed a single digit prime lending rate was in 1985 when the lending rate was 9.25 percent (according to financial statistics collated from the Central Bank of Nigeria). 34 years on, prime lending interest rate has stubbornly remained in double digit, averaging 18.79 percent during the period (double its 1985 level) despite several contractional monetary policy efforts to reduce interest rate in Nigeria. Two key questions then arise from this issue, how important is a single digit interest rate in Nigeria and why has it been difficult to achieve since 1985? I attempt to answer both questions in this article.

The importance of a single digit interest rate

  1. It could lead to rapid economic growth: The myth that only borrowers benefit from single digit interest rates is untrue. Indeed, single digit interest rates is desired by all financial markets’ stakeholders including borrowers, lenders and financial markets regulators. Single digit interest rate is considered healthy for economies around the world as it encourages borrowing for manufacturing and consumption. The lower the level of interest rate, the more producers will borrow from financial institutions to increase production of goods and services which leads to a faster growth in the national output. As economic growth quickens, the poverty level in a country typically declines. Asides increasing production on the supply side, low interest rate encourages borrowing by households for today’s consumption. Low level of interest rate can allow individuals take a loan to pay school fees, pay house rent, pay for hospital bills, buy a car, shop for loved ones and decide to pay in installments for items that they would not have ordinarily been able to afford without availability of cheap credit. Cheap credit encourages a debt financed consumption that typically drives economic growth. Little wonder, economic studies have shown that economic boom typically occurs in periods of low interest rate.
  • It increases the value of financial assets and collateral: Investors also enjoy periods of low interest rate as the value of their assets typically rise rapidly during such periods through proper allocation of investments. Since the discount rate (interest rate) with which most financial assets including stocks and bonds is low, their worth and returns tend to be high. The reverse occurs when interest rate rises as the discount rate will also increase, thereby suppressing asset prices and leading to significant wealth loss for investors. Since assets are often used as collateral (for secured loans), lower interest rate could increase the value of the collateral and increase the amount of loan that can be assessed from a lender. Higher interest rate could cause this collateral to lose value and cause a panic in the financial market as collaterals may no longer be sufficiently valuable to secure the loan originally disbursed to the customer.
  • It increases the amount of money you can access as loan from lenders at a given level of income: Since the interest on the loan is low, borrowers at the same level of income will be able to access more loans from lenders which can be invested in private businesses, acquisition of assets or for consumption. Any of these activities are positive for economic growth and the more money spent on them, the faster the economy will grow. However, if a borrower at the same level of income approached a lender to borrow funds in a double digit interest rate environment like we are currently experiencing in Nigeria, the borrower will not be able to access as much loans as he did when interest rate was lower because the interest payment is significantly higher and will prevent the borrower from easily covering repayment of loan principal and interest within the same agreed period using his fixed salary.

Why has single digit interest rate remained elusive after three decades?

For decades, a narrative from the Apex bank (i.e. Central Bank of Nigeria “CBN”) has been a mandate to make credit more affordable by reducing interest rate to single digit. While most Nigerians believe that the power to do so rests in the hands of the monetary authority and with one simple decision it could be done, the reality is that this decision is not as simple as many believe. Even though the monetary policy committee (a committee within the CBN that meets often to set interest rate for the country) have the power to make the decision to reduce the monetary policy rate (which is the anchor for all interest rate in the economy including treasury bill rate and prime lending rate) to single digit, there are restrictions to doing so because the country’s economic fundamentals currently does not support such low interest rate. Any attempt to do so forcibly will lead to financial instabilities that could bring our financial system grinding to a halt, thereby causing what could be the greatest economic disaster the economy has ever faced.

Essentially for the monetary policy committee to comfortably reduce interest rate to single digit, a single digit inflation rate must first be achieved. This is because interest rate is generally used by Apex Banks as a monetary policy tool to ensure price stability. If inflation rate is high, interest rate will be high not only to ensure that inflation declines (since they share a negative relationship) but to also ensure that suppliers of monies “investors” to the financial system get compensated above the rate of inflation. This compensation is referred to as real interest rate which makes investing in such an economy attractive. If real interest rate was to be negative such that the rate of inflation exceeded the prime lending rate in the country, banks will refuse to lend as there will be no real financial benefit to lending and this will starve the economy and customers of much needed credit required to survive and grow. This explains why anytime the National Bureau of Statistics announces that inflation is trending upwards in Nigeria, the expected monetary policy response from the CBN will be to adopt a contractionary monetary policy stance which includes increasing interest rate to bring down the rate of inflation and make investing and lending in the economy remain attractive.

Since we have now established that single digit interest rate is beneficial to most stakeholders in the financial system and that inflation is the single greatest influence of the direction of interest rate in a country, we must then turn our focus on inflation to understand why for three decades, interest rate in Nigeria has remained in double digit. In the last 34 years, average inflation rate was 19.69 percent, including 6 years when inflation level exceeded 40 percent. Single digit inflation rate in the country has been rare, occurring only 6 times in the last 3 and a half decades. If we agree that investors should earn a premium above inflation rate for taking investment risk and inflation has remained at double digit for 28 of the last 34 years, it should then be no surprise to Nigerians that lending interest rate in the country is persistently at double digit.

-Emeka Ucheaga.

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Before Engaging In a Price War…Is It Your Price?

One of the interesting P’s in the four (4) P’s of marketing is Price. It may interest you to know that of the 4P’s of marketing (Price, Product, Promotion and Place), Price is the only element that speaks directly to the top-line or the revenue earning potentials of the business. Will it be safe therefore to assume how you price your product or service has a direct consequence on the profitability and sustainability of your business? 

I am of the opinion that the intensity of competitive rivalry in the Nigerian business environment is as fierce as other business capitals in the world. This reality sometimes pushes a lot of businesses especially Start-Up’s, Micro, Small and Medium Enterprises (MSME’s) to consider competing, on the basis of pricing. The practice whereby competitors lower their prices repeatedly to gain an improved share of the market is referred to as a “Price War”. While a price war has the short term benefit of attracting customers your way, the long term impact is that you will be most likely out of business sooner than you can imagine. 

In his book Competitive Advantage: Creating and Sustaining Superior Performance, Michael Porter one of the leading voices in Business Strategy, came up with a framework that suggests how companies can sustain their competitive edge in business. This framework also referred to Porters Generic Strategies identified three strategies organizations can use if they are to build sustainable competitive advantage. These strategies are Cost Leadership, Differentiation and Focus. 

Cost Leadership is often misrepresented as lower pricing when in essence it suggests that for an organization to have a sustainable competitive advantage, it has be so efficient and effective in the management of its resources such that it is able to produce a unit of its product or service at the least cost in their chosen industry. Please note that being able to produce a unit of a good or service at the least cost for a given level of quality in the industry is borne out of efficient and effective management of the resources available to the business and not an arbitrary reduction in prices because of the desire to increase market share. Differentiation Strategy on the other hand speaks to the uniqueness of the product or service as identified by the customer themselves; and for which they are willing and able to purchase the product or service regardless of the price. Organization’s that adopt focus strategy, identify a narrow segment of the market and within this narrow segment or narrow market focus, attempt to achieve either a cost leadership or differentiation. 

The above definitions actually give an insight on what organizations regardless of size should consider before fixing their prices. Some other important factors to remember in determining the price of a product or service are stated below: 

1. Customers buy VALUE not price per se. 

2. Not all customers are homogenous – different customers will value a product or service differently and as such will be willing to pay different prices for such a product or service. 

3. Customers always buy the product or service they perceive to represent best value. The customer’s perception of value is therefore always relative to the competition. 

4. The price of your product or service should at least cover all your variable costs with an added provision for profit. 

Let me explain further with this illustration. 

Abiodun and Gboyega are die-hard Premiership followers. Abiodun supports Arsenal while Gboyega supports Manchester United. Both men have an undeniable passion for football and decided within themselves to start selling football accessories. Abiodun and Gboyega situated their respective football accessory stores near a newly opened football park called Goal Centre. Every day hundreds of football enthusiasts went to Goal Centre to play five-a-side football. Abiodun and Gboyega stocked all kinds of football accessories including Jerseys, Socks, Shin-Pads, balls and boots. 

Gboyega gets all his football accessories from the UK. He travels there every three months to replenish his stock. Whenever he travels, he flies at least premium economy and spends a minimum of five days staying in a three star hotel. He has a bank overdraft priced a 28% per annum with an annual clean up cycle from one of the leading Banks in the country. He has to pay cash every time he purchases stock from the manufacturers as he has found it difficult to obtain credit from the manufacturer. He has four sales staff and offers a free drink every time a customer comes to his store. 

Abiodun also gets all his football accessories from the UK. His cousin Akin who lives in the UK helped him obtain a distributor’s credit from the same manufacturer Gboyega gets his football accessories from. The company ships a sufficient quantity of football accessories to him based on an agreed order level. He also has a credit period of 90 days. Abiodun is a very hands-on manager and has two sales assistants working with him. Abiodun sells a replica Manchester United jersey for Twenty-Five Thousand Naira and has a lot of patronage from the football enthusiasts who play football at Goal Centre. The total cost of getting a Manchester united jersey to Abiodun’s store from the UK was Twenty-Thousand Naira. 

As he returned from his last trip, Gboyega was informed by his staff that sales remained low because his Manchester United Jerseys were sold for Thirty Thousand Naira and customers complained that they were too expensive (the total cost of getting a Manchester United jersey to Gboyega’s store was Twenty Five Thousand Naira). Unhappy that he was unable to compete with Abiodun, Gboyega reduced the prices of most of the items in his store when he announced a 30% reduction in prices such that a Manchester United Jersey in his store sold for twenty- one thousand naira. He saw a significant improvement in his monthly sales performance following 

this decision. A few months later, he went back to the UK to replenish his stock but could only afford to buy 70% of his usual inventory as he had less cash following the heavy discounts given to customers. More people heard that the price of a Manchester United jersey at Gboyega’s store was cheaper so he continued enjoying increased patronage. Abiodun, seeing a decline in sales, offered everyone who bought a jersey free name customization and a ball (these added freebies cost him only two thousand naira). This decision once again endeared a lot of customers to Abiodun’s store. By Gboyega’s next trip he was only able to purchase 50% of the stock levels he started off the business with and he was due in a month to pay down his Bank overdraft and rent. He was unable to meet these obligations as and when due and held a clearance sale to shut down the business. Abiodun enjoyed increased patronage as Gboyega’s former customers became his. The Manufacturers gave him an extended credit period because he now significantly surpassed his previous order levels and met his financial obligations to them as and when due. 

The illustration above attempts to capture what happens to a lot of MSME’s. Both businesses sold the same products but had different cost structures. Price wars at best only give short term gains. All entrepreneurs should remember that building a sustainable business requires incorporating sustainable practices borne out of a clear thought process. Fighting a price war can be likened to running another person’s race. Most of the time, we don’t know the basis or circumstances that influence the pricing decisions or cost structures of our competitors, yet many entrepreneurs reduce the prices of their products because a competitor just did so. Price determination should be strategic, borne out of a deep understanding of the market, cost structures, industry, environment and circumstances unique to the business. Entrepreneurs’ should always run their race and not another’s, keeping their eyes on the price by seeking ways of improving their product offerings, service delivery, getting favourable terms of trade etc. not fighting price wars that may be counterproductive. Let price determination be borne out of the fundamentals unique to every business not by mimicking what your rivals do every time. Their Price doesn’t have to be your price.

Chukwuma Nwanze- Executive Director, Credit Direct Limited.

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The Parable Of Assets, Liability And Equity

The Parable of Assets, Liabilities and Equity- Chukwuma Nwanze

A young man once asked his Father, what must I do to be a successful entrepreneur? His Father looked at him and with a big smile on his face then beckoned on him to take a seat. As both men sat, his Father told him a parable.

There were two women, one with a degree from a reputable University named Zeo and another named Zara who didn’t go to the University but learnt the art of trading from her mother. Zeo and Zara set out to start-up businesses in their chosen fields. Zeo was a gifted Baker and set out to start a Bakery while Zara a very good cook set out to start a Restaurant. Before departing from home, Zeo was given some money by her parents and also obtained a loan from her best friend Zikora which was to be paid up in six months. Zara’s mother applied for a six month loan from her co-operative, sold some of her possessions and gave the money she had put together to her.

Zeo chose to situate the Bakery in an upscale neighbourhood where most of the residents appeared to live healthy lives as most of them were seen jogging very early in the morning every day. She got a space in a high street shopping mall and contracted a leading interior decoration company to help with the interior and exterior design of the Bakery she named “Zeo’s”. After finishing the interior and exterior design of the Bakery, Zeo set out to buy Bakery equipment’s only to realise that she had spent more than she should have on leasing and renovating/ upgrading the space where the Bakery was situated. Instead of buying new equipment’s, she resorted to buying fairly used equipment’s. With the money she had left, she had a launch party where she and her very excited friends sang, danced and posted pictures on social media all night.

Zara elected to open her restaurant close to a major bus terminal in a densely populated part of town where hundreds of people took the bus on a daily basis. Her Restaurant named after her, served local delicacies with the option to sit in and eat or take-away. She ensured her environment was always clean and made sure her sales girl was courteous to everyone who came to buy a meal. Her investment in acquiring assets for use in the restaurant was minimal as she bought only the basics with the mind-set that she will buy more equipment’s as the restaurant grew.

Both businesses started about the same time but three months into starting the Bakery, Zeo complained that her patronage was not as she envisaged. Her friends always came around and she was more than happy to give them pastries and bread every time they were leaving and even when they decided to buy, they bought on credit most of the time. Her oven started developing problems and she was unable to produce on some days. She had issues with the service charge at the shopping mall; the management of the mall wanted to collect service fees upfront for a three months period going forward. Zeo was distraught, everything seemed to be falling apart. She had not repaid her loan, no money, no customers, faulty equipment’s and increasing administrative overheads were her new reality.

Zara was having a different experience. Her native jollof rice was the rave of the moment as customers from within and outside her locality patronized her. She employed a “pay before service” philosophy. Her sales girl did the serving while she collected the money from the customer. She had repaid the monthly instalments on the loan her mother took on her behalf as and when due. Business was really good.

The young man appeared to be enjoying the story when his father asked him if he was able to extract any lessons from the parable. As he was about to respond, his father motioned towards him and continued speaking. “To become a successful entrepreneur, you need to understand the role of Assets, Liabilities and Equity in the business” he said. He went on to explain what he meant by Assets, Liabilities and Equity. The accounting equation (Assets= Liabilities+ Equity) truly sums it all. It suggests that assets can be acquired either through liabilities (debt) or equity or a combination of both. Assets can be referred to as resources controlled by a business from which future economic benefits are expected to flow to the business. “Future economic benefits” from that definition refer to the income generated by the business and it is safe to assume therefrom that cash will flow to the business. Liabilities on the other hand can be described as a “present obligation, arising from past transactions which when settled or paid will lead to an outflow of economic benefit from the business’’. Equity can be described as an “owners claim to a business’s net assets” and net assets refers to total assets less total liabilities. Equity is sometimes referred to as the cash or idea the owner of the business makes available to start up the business.

Assets can either be acquired by way of debt (loans, borrowings from family and friends) or Equity (personal savings, inheritance, funds from partners etc). One of the principal things done with loans or equity is the acquisition of assets (note that for a start-up, debt and/or equity can also be used for set-up costs). These assets are expected to generate income or enable income generation. It is this cash that is in turn used to settle expenses that maybe incurred during the course of business or liabilities as and when they fall due. Excess cash can also be used in acquiring new assets, used for growing the business or even paid out as dividend to the owners of the business.

Looking lost, the young man asked “Father, how does all this relate to your parable”? His Father answered with the following points

  1. The monies obtained by Zeo from her parents and the proceeds from Zara’s mother’s possession were equity in the business. Every start-up business needs equity as it shows a level of belief in the business idea or as some will say skin in the game.
  2. The six month loan Zeo took from Zikora and the loan Zara’s mum took on her behalf from the co-operative are Liabilities. These loans have cash flow implications as principal and interest will have to be repaid based on the terms of the loan. Start-ups and small businesses are encouraged to use more of equity at the start and when the business starts generating a regular cash flow pattern, they can consider taking debt by way of loans if and only where necessary.
  3. Zeo and Zara used their debt and equity differently. While Zeo used her’s  for non-income generating assets leading to poor cash flows, Zara used hers wisely, spending wisely and being more deliberate about getting the proceeds of her sales.
  4. To be a successful entrepreneur, you need more than talent. Zeo and Zara were gifted at what they did but the decision making required to manage a successful enterprise was evidently better with Zara.
  5. Cash is the life-blood of any organization. Any business that is starved of cash will find it difficult to operate whether in the short, medium or long term. Cash is used to fund day to day operations of the business, repay loans, settle overheads, invest, acquire assets and at the right time pay dividends.
  6. An understanding of your market and the interplay of product, price, promotion and place (4p’s of marketing) are as important as the talent, capital and passion any entrepreneur possesses.

The Father asked his Son, is there any other lesson you have learnt? The son replied heartily, “business thrives when friends and family pay for goods and services”.

  • Post by Chukwuma Nwanze- Executive Director (Credit Direct Limited)

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Five Reasons Why Small Businesses Fail

If you cast your mind back to your interaction with most entrepreneurs (and if you are an entrepreneur yourself), there is a high probability that you will find a common denominator amongst all the entrepreneurs you meet. There is an unbelievable dosage of passion and energy that is always evident when an entrepreneur is describing the inspiration behind his or her business model and why the model was on the verge of heralding “the next big thing”. Sadly, passion and ”big talk” are not often enough to help small businesses survive the first twelve (12) to twenty four (24) months of their business life. 

So why do small businesses fail? 

1. The quality of the business idea: The primary aim of a business is profitability and the seed that births profitability is the idea that is translated into a business model. Most often than not, entrepreneurs do not subject the quality of their ideas through the required rigor and stress testing before taking it to market. This is one main reason why small businesses in Nigeria fail. No matter how exciting and innovative an idea might sound, it is pointless taking it to market if its profitability and sustainability have not been tested. 

2. Motivation and Passion is not always enough: In today’s Nigeria, motivational speaking and inspirational talk appear to be the new “cool” and as such many entrepreneurs find themselves listening to a lot of these speakers, as they attempt to start or reposition their businesses. While there is nothing wrong with the activities of motivational speaking and coaching, the reality of starting a business goes beyond the excitement that comes after being exposed to a “think big, dream large” session or a “don’t walk on the earth, start from the sky” message. There are many other things that must support one’s passion or excitement – such as technical competence/skills, structured execution of strategy, effective cash-flow management, hiring the right people for the right roles at the right time to mention a few. These elements when mixed with passion, energy and excellence in the right business environment will help a great deal in achieving success. 

3. Taking giant strides instead of baby steps/Poor planning: “The journey of a thousand miles, starts with a step”. This is a simple but difficult reality to implement for most small businesses in Nigeria. The going-concern status of every business should be considered 

a marathon and not a sprint. Unfortunately, most start-ups today have elected to take giant strides at the commencement of their business operations instead of the required baby steps. In Nigeria, societal pressure sometimes pushes a lot of entrepreneurs to do things in the early days of their business. This ends up being detrimental to the medium or long term survival of such a business. They sometimes begin with incurring expenses that at best can be described as wasteful. For example, setting up fancy offices, aggressive above-the-line marketing, acquisition of operational vehicles, a full complement of staff etc. While there is nothing wrong in doing these things, the reality is, most small business owners commit funds that should be used for the core of the business on non-essentials – which at best satisfy their egos and give them a false sense of societal acceptance. In no time, they have used up funds that should be used for the core of the business on non-core business activities. 

4. No Staying Power: Most entrepreneurs, today, lack what may be termed as “staying power” as they give up their ideas once they hit any brick wall on their journey. Entrepreneurs are expected to brace up for turbulent times especially at the beginning when it appears that all that was thought through may have been wrong. The right mental attitude, coupled with a clear plan, proper structures and effective cash flow management will be required as you ride the waves. A dogged and resilient attitude in the face of serious opposition to the set objectives is most often missing in most entrepreneurs especially within the younger generation. The saying that life is not a bed of roses is applicable to businesses too. It may not always be smooth but entrepreneurs with staying power ride the waves and always come out stronger and more profitable. 

5. Poor Records Keeping: Most entrepreneurs are guilty of not keeping proper records of activities concerning their businesses. Truth is, most entrepreneurs don’t set out with the mind-set of not keeping proper records; yet a large number fail to keep track of business activities or transactions. 

Many small business entrepreneurs fund their activities from savings, friendly loans or even gifting’s from family members. These funds, which may come in form of cash in hand, are easily expended without keeping track of such outflows. Sometimes, assets may be purchased, transferred or even given out but most entrepreneurs fail to recognise and record these activities as they occur. At every stage of a business, from ideation right through to actual incorporation and commencement of the business, resources are deployed and put to use. Sometimes these resources are deployed so quickly that capturing them at a later date may either be impossible or done without the required 

accuracy. Absence of accurate records often leads to poor decision-making, and poor decision-making is normally the foundation for failure. 

The above five reasons are non-exhaustive and the jury is still out as to what percentage of start-ups or small businesses fail within the first two years of commencement of business operations. While some researchers have put it between 80% and 90% failure rate, some others have estimated it to be around 50%.

Chukwuma Nwanze- Executive Director

Responsible Lending As A Credit Risk Management Strategy

The principles of responsible lending became popular after the infamous United States subprime mortgage crisis which occurred between 2007 and 2010 but had been introduced earlier in some countries like the United Kingdom. The crisis itself was caused by sharp decline in home prices but made worse by a housing bubble driven by the proliferation of subprime mortgage loans. Loans are classified subprime when offered to individuals who ordinarily do not qualify for loans at prime rate typically because of bad credit history. Though expensive, subprime loans are good when used responsibly because it increases the opportunity of home ownership. Subprime loan is a problem in the absence of responsible lending. Many countries adopted the principles of responsible lending to prevent consumers against over-indebtedness, typically caused by predatory lending practices but some lenders have gone further to adopt responsible lending principles as a credit risk management strategy.

Credit risk is the inherent risk of a borrower (in this case an individual) defaulting on his/her loan obligation. Loan losses happen when a borrower fails to make payments on loan instalments on the agreed dates in a term loan or fails to make minimum payments on his/her credit card on the due date. These losses range from the opportunity cost of funds utilization through cost associated with recovery to outright loss on unrecovered funds. Credit risk management is therefore a priority for banks and non-bank lenders, and it starts with responsible lending. 

So, how do you SEE your customers? SEE, is used as an acronym for Suitability, Eligibility and Education.

Suitability

The suitability of a loan to a borrower depends on his/her need at the time of applying. The first responsibility of a lender is to match that need to its product offering. In the Nigerian context, a simple example of an unsuitable loan is selling an expensive unsecured loan to a customer who needs to buy a property. Another example is a mismatch in the loan tenor for the purpose of maximizing revenue; this instance may lead to what is known as a repayment fatigue. In fulfilling its responsibility of selling suitably, a lender must design its processes and/or train it’s sales agents to identify customers’ needs before offering the loan. Without such processes above or the necessary training, the risk of default due to mis-selling becomes high.  

Eligibility

The eligibility of a customer relates to affordability of loan repayments, having the appropriate source(s) income and/or stability of the income source. Eligibility must be determined at the point of sale and approval of the loan. As a responsible lender, your loan product must have a well-defined eligibility criterion (based on risk appetite) that guides both the sales team and loan underwriters. Also, key to loan eligibility is KYC (Know-your-customer) guidelines which prevents fraud and ensures that the loan is disbursed to the person identified as applicant. The idea behind eligibility of a loan is not a set of rules that have been created and passed down to the sales team but more important a credit risk culture that spreads across the organization. Eligibility assessments may be automated as part of your loan process, into an application score card and it typically requires completion of a form containing demographic and financial information. Non-eligible borrowers are more likely to struggle with repayments or even default outrightly.

Education

Loan defaults can also be associated with how poorly educated the customer is on the loan features. It is not enough to assume that customers are aware of the interest rate, repayment dates, settlement charge, loan tenor and other features because it was agreed during sales. As a responsible lender, these features must be captured on the offer letter or loan contract and possibly explained clearly to the customer verbally. More recently, technology has made it easy to communicate with loan customers via email, short message service (sms) and a client portal. There are several communication touch points in a loan cycle that must be well utilized; at point of sales, pre-disbursement and post disbursement. Post disbursement, a lender may send repayment reminders a few days before due date to reduce the risk of default.

Most of the points discussed so far relates to onboarding and management of the customers but SEE can also help a lender with remedial management. In the event of default where it becomes necessary to restructure a loan, these principles are required of a responsible lender.

Today we see local financial services companies in Nigeria adopting responsible lending principles as a tool to protect their organizations from reputational risk but evidence from countries that have adopted it shows that it also serves in managing credit risk. 

  • Gboyega Adelowore

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