Credit is a contractual obligation extended to borrowers, with the clear understanding that repayment will be made in a timely manner, as at when due. Where this fails, enforcement becomes necessary to recover these unpaid debts. Serious economies treat enforcement as core market infrastructure. Every signal around default, recovery, and consequence feeds into how lenders price risk, structure tenors, and decide on who receives credit and who does not.
Why Enforcement Premium matters
When creditors do not trust the enforcement systems in place, they front-load extra risk into every credit facility extended to borrowers. In many African markets, weak creditor rights, slow courts, and poor recovery processes increase the losses suffered by lenders, thus impacting the rate of default across sectors of the economy. Lenders respond with higher interest rates, shorter tenors, and higher collateral demands, often above 150 to 180 percent of loan value for Small and Medium Enterprises, SMEs, as shown in African SME finance studies, World Bank and IMF research work on credit reporting and collateral practices in Africa.
Research on credit reporting in Africa describes a “virtual inability to enforce contracts” in some jurisdictions, with practical obstacles in court processes and security realization. This pushes banks toward conservative lending, narrower customer segments, and rationing rather than pricing of risk. The larger corporates, perceived to have more stable businesses, get all the available credit facilities while the SMEs struggle to survive, as credit is limited to the real sector of the economy, where the numbers are more, and impact on growth of the economy is more critical.
Where enforcement is credible and efficient, this is easily seen by the evidence from Doing Business enforcement data. Related empirical work links faster, more predictable contract enforcement is achieved, resulting in higher trade volumes, more formal contracting, and broader credit access. When borrowers expect real consequences, and lenders expect recovery, margins compress and credit supply improves. The real sector enjoys greater access to credit and the economy as a whole benefits through improved stable and guaranteed growth. Credit Insurance has created an assurance in most developed countries, guaranteeing lenders the comfort they need when extending credit to borrowers, knowing that in the event of default, they are secured.
Nigeria in African perspective
Studies on non-performing loans NPLs in MINT economies and East African countries show NPL ratios respond to macro shocks, bank-level variables, and institutional quality, including governance and corruption indicators. Where governance quality is weak, NPLs tend to rise. Banks respond by tightening lending standards, raising pricing, and demanding more collateral.
Cross-country African evidence shows that stronger legal institutions, better regulatory quality, and more effective contract enforcement are associated with lower NPL ratios and more resilient portfolios. Supply-side constraints are not solved by liquidity alone. Without predictable enforcement, lenders protect themselves through rationing and defensive pricing.
Figures are indicative and synthesized from regional empirical studies on NPLs, SME finance, and contract enforcement rather than exact country – timepoint statistics.
Average NPL ratio, indicative, recent decade:
- Nigeria has experienced elevated and cyclical NPL ratios, sensitive to oil price movements, macro instability, and governance quality.
- Kenya reports moderate NPL ratios but has seen stress linked to rapid growth in retail and digital credit. Regulators have intervened to stabilise portfolios.
- South Africa typically shows lower and more stable NPL ratios than many peers, supported by stronger institutions and more developed legal and supervisory frameworks.
- Institutional quality and enforcement capacity track NPL outcome.
Collateral to loan value for SMEs
African SME studies show average collateral requirements near 180 percent of loan value.
- Nigeria fits this pattern especially outside top tier borrowers.
- Kenyan SMEs face similar high collateral demands from banks, even with active Fintech credit markets.
- South Africa remains collateral heavy but benefits from more diversified credit instruments, stronger secured transactions law, and more effective enforcement.
- High collateral is a direct symptom of perceived enforcement risk and weak recovery performance.
Contract Enforcement Systems
- In Nigeria, court congestion, procedural delays, and inconsistent execution make recovery slow and uncertain. Lenders fall back on relationship-based negotiation.
- Kenya combines formal courts with arbitration and other mechanisms, but capacity and backlog remain constraints.
- South Africa operates within a more developed enforcement environment, including specialist procedures and regulators for consumer and credit disputes.
- Where enforcement is specialised and predictable, credit deepening is easier and cheaper.
SME access to Formal Credits
- Nigeria has a documented SME finance gap, with many SMEs relying on informal or trade credit. Formal bank lending is constrained outside top rated clients.
- Kenyan SMEs benefit from mobile money and digital credit, although traditional banks remain conservative, especially for unsecured term lending.
- South African SMEs enjoy relatively better access to formal credit, though gaps persist for micro firms.
- Enforcement quality and credit information infrastructure shape both pricing and the breadth of access.
- Figures are indicative, using patterns from regional work on NPLs, SME finance, credit reporting, and contract enforcement, not exact annual ratios for any single year.
What Disciplined Markets enforce repayments
In jurisdictions with deeper credit and more stable portfolios, lenders and borrowers live with clear rules on consequence management. Common elements include:
- Automatic escalation after covenant breach, with predefined restructuring or enforcement workflows, rather than open-ended delays.
- Credit history penalties that influence access to higher-ticket products, leasing, and sometimes eligibility for public contracts, especially for serial default.
- Credit bureau and registry systems that record serious default and restructuring events, and that feed into risk models across the system, without turning into arbitrary blacklisting.
- Board-level accountability for asset quality and credit governance failures. Supervisors and markets expect consequences when poor risk culture leads to repeated portfolio damage.
Empirical work in Africa links stronger regulatory quality and better credit reporting to lower NPLs and improved credit access. As enforcement strengthens and information improves, lenders need a smaller risk spread to compensate for uncertainty.
Debt recovery as economic hygiene
Effective recovery is a system function, not only a legal tool. Each resolved case:
- Returns capital to lenders for redeployment.
- Demonstrates that contracts have weight.
- Resets expectations for both borrowers and lenders around discipline.
Studies on NPL determinants in transition economies show that high, persistent NPLs drag on growth, impair bank lending, and slow recovery even after macro indicators improve. Where enforcement is weak, NPL stock stays high, risk aversion rises, and credit growth lags.
Where KREENO fits in
Within this environment, you need specialised players, focused on governance and enforcement discipline. A consortium like KREENO is positioned to sit at the junction of lenders, boards, and regulators. Practical roles include:
- Professionalising recovery through standardised, lawful workflows that replace ad hoc, relationship-driven collections.
- Working with boards to embed credit culture and enforcement norms in policy, delegation, and incentive structures.
Improving information quality by documenting recovery outcomes and feeding structured data into internal risk analytics and external credit systems. - Providing transparent reporting on portfolio hygiene and enforcement performance that regulators and investors can rely on when assessing institutions.
This type of function supports banking supervision objectives and credit deepening. It is not only about chasing debts. It is about making enforcement credible, predictable, and fair.
Choosing discipline over delay
Nigeria cannot influence global rates, but you can influence how your system treats breach and repayment. Evidence from African and transition economies points in one direction:
- Stronger enforcement, paired with better credit information, supports broader access and reduces the need for extreme collateral and pricing.
- Institutional quality, including court efficiency, regulatory effectiveness, and governance discipline, is visible in NPL statistics and investor perceptions.
If default feels convenient and consequence feels negotiable, capital stays short-term and expensive. If default feels uncomfortable, in a lawful and structured way, lenders extend maturity, SMEs gain breathing space, and investors have grounds to stay.
That is the enforcement premium in practice. Serious economies use enforcement to protect contracts and preserve trust in credit, not to punish legitimate risk taking, but to keep the system honest for everyone, the same thing that the Federal Government is now doing with this new Tax regime with regards to tax debt enforcement, in order to improve revenue generation.
For more information, clarifications and support, Contact Prof. Prisca Ndu on +234 902 148 8737 or priscan@kreenoholdings.com
