How big is the addressable market for consumer loan in Nigeria?

Nigeria’s 200 million-strong population is often the ultimate proof that the giant of Africa has a large market for just about anything. The belief is that as long as you make anything, you can sell it here.

But our economic realities have helped us adjust those mythic expectations and what we now talk a lot about is Nigeria’s total addressable market (TAM). TAM has become a contentious term, mainly because there’s not much data to give you a clear picture of the Nigerian market.

Instead, you have pieces of data to patch together to make some assumptions. So right off the bat, we know that in 2020, the size of Nigeria’s working population is 62.2 million and that we have around 99 million unique mobile subscribers as well.

It paints a picture of a vast market, but this population has limitations such as record unemployment and a high poverty rate. Agriculture, one of the sectors that employ many people, is essentially subsistence farming at an almost primordial level.

One of the historical hurdles to Agriculture and many other sectors is access to consumer credit. As I’ve said in other articles, there’s a strong link between access to credit and economic growth, and now we know that the opportunities are there in Nigeria. And the opportunities are massive.

How big is the Nigerian market in itself?

One easy proxy for how the consumer credit market can be is Nigeria’s telecoms market. There are many similarities there such as how when mobile telephony was introduced, it was not easy to access for the middle-class and poor Nigerians.

SIM cards sold anywhere from N15,000 to N20,000, and basic phones were even more expensive. Today, SIM cards cost next to nothing, and anyone without a phone is seen as a psychopath.

Credit is just as crucial to the everyday Nigerians and the economy. Suppose the bottlenecks to accessible credit are removed. In that case, access to credit can do even more significant numbers than telecoms and have a 10x impact on the economy than what GSM contributed. Mobile phones are essential, but credit is the lifeblood of any economy.

The credit helps people tide over unexpected expenses or even shocks such as sudden job losses. And it provides the opportunity for people to start businesses or expand existing ventures. In many instances, access to credit is the difference between life and death.

Lenders already know this, and we’ve seen a lot of growth in digital lending in recent years. Five to seven years ago, it was impossible to get a loan from the comfort of your house using your mobile phone, but now it is standard fare. Three years ago, it was almost impossible to get a loan from a bank that you didn’t have an account with.

Evolve Credit, a loan marketplace in Nigeria lists well over 30 lenders offering various loan types, from consumer loans to SME loans.

A basket of offerings

So far, payday lenders seem to be leading the consumer credit market. Fairmoney and Carbon, two lenders who share their numbers, boast a combined loan disbursement of over N70 billion in 2020 alone. We can hang a conservative size of N200b for the non-bank retail credit in 2020 if we factor in other large lenders who didn’t report their numbers.

Many other lenders in the market follow the same format; two-week loans typically start from N10,000 to N30,000 at 15% flat interest rates. Most people who take these loans know that they will qualify for more significant loan amounts if they are faithful with their repayments.

The big banks offer more long-term loans, with GTBank’s QuickCredit, for instance, offering year-long loans at 1.33% per month, one of the industry’s lowest rates. It’s a format most banks also copy, with differing interest rates.

But there are still many gaps in the market; SME financing remains pretty tricky to access, mainly because those require more complex loan decisions. With personal loans, you can check if the individual has a steady job, loan history, and the percentage of the loan amount to earnings.

SME lenders like OZE first need businesses to establish a history and keep records before loan offers can be made. On its part, Lidya says it takes 24 hours to make loan decisions to SMEs, which is longer than the instant decisions made by payday lenders. 24-hour approval isn’t a bad deal for SMEs who wouldn’t have gotten any loans from traditional banks in the first instance.

But the availability of SME loans is so poor we can argue they don’t exist; with things like asset financing or vehicle financing, there are almost no offerings available.

Featured article: Nigerian banks will never win the consumer credit game

How big is the credit gap?

There are significant credit gaps across all sections of the credit market. For example, let’s take payday loans; some back-of-the-envelope research has shown that salaried workers take an average of N23,000 6 times a year. If 50% of our 62 million-strong labor force takes an average of about N23,000 loan six times a year, that’s a N4.3trillion loan segment.

Away from payday loans, let’s talk about smartphone financing. The average person gets a shiny new toy every couple of years; on credit from their telcos. But the case is different here; we all save to buy phones that we use for three years or more. Because the $150 for a new phone is a barrier to most Nigerians struggling with minimum wage, what if 70% could buy smartphones on credit with a replacement life span of 3 years and an average cost of $150. At N480 per USD, that’s 23.3m Nigerians (assuming one this of 69.3 buys every year) borrowing N72,000 to get a smartphone each. That’s an annual N1.7 trillion market.

Laptop financing is also a big market given that we are in a digital age and computers are super important. With Nigeria’s young population estimated to be around 100 million, laptops are a significant need. If only 20% of young people have access to laptop financing every year for laptops that cost $500, that will be a market size of N3 trillion every year.

Rent is something most Nigerians struggle with as it has to be paid in bulk, sometimes 2 years’ worth of rent at once. And if you have to move to a new place, the cost of sprucing up can be high. What if 40% of the 99m Nigerian adults could take a rent loan to spread the burden? At about N350,000 (not everyone lives in Lekki), that’s a N10.3 trillion rent financing market.

There are even more opportunities in vehicle financing when you consider that there are only 11m cars in Nigeria which is 57 cars per 1000 Nigerians. If we’re to match the South African ratio of 174 cars per 1000, that’s an extra 23m cars to clog the few roads in Nigeria. Let’s assume 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 finance could be a very massive market. After all, every house and especially our dear madams, need white goods such as air conditioners, fridges, deep-freezers, etc. to live a good life. An average home could spend up to 500K every couple of years to buy these assets or replace older ones. If 50% of the 42m Nigerian households could find a way to finance these assets, then that’s a N10 trillion market every 2 years.

In Nigeria, half of the population is under the age of 19, which means that parents and households have to worry about education financing. Good schools cost money from the primary until the tertiary level; we know that chickens will grow teeth waiting for the Government to turn the educational system around. What if 40% of parents can have access to credit of N300,000 per year to fund private education for their kids? That would be a massive N12 trillion education funding every year. Think of the impact of that on schools, teachers, and Nigerian development.

The dream of every Nigerian, man and woman alike, is to live in their own homes. But the housing gap is so massive, it required 17 million units to bridge that gap as of 2012, which would come to 700,000 houses yearly; since 2021, the gap has widened. To make any dent in the market, around 1 million people should have access to mortgage financing every year. If you want to provide mortgage access to 1 million Nigerians yearly for low-cost housing that costs N10 million Naira per unit, that’s an N10 trillion market.

In every economy, the SME sector is always the driver of growth. But for the Nigerian SMEs, it’s like everyone for themself. SME capital and overdrafts aren’t left out as well, with 41.5 million SMEs in the country. Most of these SMEs have a difficult time accessing microcredit. For many of these businesses, a loan of N600,000 every year will go a long way in helping with cash flow. If 50% of these 41.5m SMEs get this N50k per month credit, you are looking at a total of N12 trillion in SME loans per year.

We have a massive N74 trillion credit gap!

If we tally the different sectors begging for credit, we would see a N74 trillion chasm of credit gap each year, which is mainly unfinanced. That’s a third of our current GDP. With technology and data, banks, and even much more, fintechs can start to attack these gaps to provide succour.

And the benefits to the economy would be massive; taking the multiplier effect, we expect a 10x impact, which could add N740 trillion to our GDP, which would effectively triple our economy. Millions of jobs would be created, companies would make massive profits from loans, and trust the Government to get taxes from sales and corporate income.