Thursday, September 21, 2006

How to solve a lot of problems at once in Nigeria

As is often said, Nigeria is a low-trust high transaction cost economy. This means that when two strangers engage in a transaction, the initial assumption on both sides is that the other person should not be trusted. Given the general lack of information, due diligence is almost impossible, so people have to rely on hearsay and trusted references. This general framework increases risk, effort, time and therefore cost on all transactions. Trust is therefore an intangible social value that, when its not there, hampers development perhaps more than any other single factor, whether on an organisational or on a national scale.

Ordinary Nigerians face huge hurdles just to get simple things done. For example, the act of buying an international air ticket (whether to Nigeria, or leaving from) is fraught with difficulty, thanks to a small but consistent percentage of fraudulent transactions. It seems that all the international airlines have special rules for Nigerian customers, which mean that things you can do online and offline if you are not Nigerian, you cannot do if you are.

The root problem is that it is at present impossible to assess trust. The key missing component is therefore a credit ratings agency. Companies such as Experian in Europe have information on many aspects of individual consumers - most especially an assessment of credit worthiness based on past banking history.

Although there's been talk in Nigeria about setting up a Credit ratings agency, there has yet been no action. In order to increase the level of trust in the economy, it is vital and urgent that one is set up. It is a win-win situation - companies (banks, building societies and select vetted private enterprises) would pay to access customer information as part of their risk assessment. Therefore, the agency would make good money, employ people etc. Most of all, it would hugely improve the efficiency of the banking system - the time it takes for instance for a small business loan to be granted to a SME. It would also encourage good fiscal behaviour, as people would know that in order to get credit, they need to be able to service their debt within set guidelines.

A credit ratings agency would therefore be one crucial component of encouraging credit facilities in the banking sector, providing a huge boost to businesses and consumers alike. Without it, Nigeria will remain low-trust, high transaction cost.


Through these eyes 9:07 pm  

You couldn't have said it any better. Your blog is fun and your accounts of happenings are hilarious, but at the same time very accurate. I lived in Nigeria for 16 years but you seem to know more about the why's and how to's than I do. Thanks for the humor and keep up the good work.

Through these eyes 9:11 pm  

Also feel free to stop by my site and leave a comment:
[email protected]

Imnakoya 3:09 am  

You mentioned the absence of credit rating agency in your post. There are some innovative activities going on in that sector. The CreditRegistry is: is one of them, using biometric instead of IDs numbers. See CreditRegistry Corporation: Nigeria Credit Service Pioneer. And you know what, the company is owned by a Nigerian, from the Diaspora.

nigeria, what's new 9:02 am  

"Although there's been talk in Nigeria about setting up a Credit ratings agency, there has yet been no action. In order to increase the level of trust in the economy, it is vital and urgent that one is set up."

How do you begin to open up this hard and yet so soft word, trust, in the fifedom Nigeria? What is trust? It is more than counting on people to do what they say they will do. May I be forgiven for thinking that in 2006 our people still behave as if they are in the ancient times. Plato’s most famous work The Republic focuses on a crucial ethical question:

is justice good in itself, or is the fear of retribution our only reason to be just? If you had the opportunity to grab wealth and power at everyone else’s expense, without any chance of retribution, what reason could there be to pass it up?

Maybe we should 1st look for justice or a measure of it. Trust is as elusive in philosophy as it can be in practice but in Nigeria, where do we begin to fix the soft issues in trust before tackling the hard technology ones and back to

In order to increase the level of trust in the economy, it is vital and urgent that one is set up

Who are the gate keepers?

Anonymous,  9:54 am  

Hey Miss "through these eyes", Stop drooling. Our Jez is spoken for. LOL

Anonymous,  11:53 am  

Well said, But I do think we need a National Identity system, before such a credit rating system could possibly be implemented.

Through these eyes 5:38 pm  

Whatever anon! It's allowed. ;)

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