Access to credit remains a defining factor in economic mobility. In Nigeria, as in many emerging markets, traditional credit scoring methods—typically reliant on formal banking history—exclude vast segments of the population. The challenge is not merely availability but access. According to the World Bank, only 45% of Nigerians hold bank accounts, meaning they lack the formal financial footprint necessary for conventional lending. If credit is a ladder to economic advancement, millions are left without rungs.
The Credit Scoring Gap
The Nigerian financial system has long utilised a conservative credit assessment model: a prospective borrower’s worthiness is largely judged by their existing relationship with banks. Credit bureaus rely on financial transaction history, bank statements, and loan repayment records. However, with Nigeria’s informal sector contributing about 55% of its GDP, many financially active citizens do not possess formal credit histories. The result is an economy where small businesses and individuals who could benefit most from credit remain locked out.
The consequences of this exclusion are evident in Nigeria’s credit penetration rate, which remains alarmingly low. Only a fraction of adults have access to formal loans, with microfinance institutions struggling to bridge the gap effectively. Meanwhile, informal lenders charge exorbitant interest rates, trapping borrowers in cycles of debt rather than promoting economic mobility.
Rethinking Creditworthiness: Beyond Traditional Metrics
To bridge the access gap, Nigerian financial institutions must reconsider how creditworthiness is assessed. Emerging markets have demonstrated that alternative credit scoring methods can significantly expand credit access without increasing risk. Platforms like Tala and Branch in Kenya analyse spending habits, handset details, and repayment behaviour on mobile wallets to determine lending eligibility. A similar model in Nigeria could provide microloans to SMEs and low-income individuals without requiring traditional collateral.
For small businesses, inventory purchases, supplier payments, and customer transactions are robust indicators of creditworthiness. In India, fintech lenders like Fundfina analyse merchant transaction data to determine loan eligibility. By embedding credit assessment within supply chain financing, Nigerian banks and startups like Alerzo can extend credit to small traders who are otherwise deemed ineligible under conventional models.
Yet, while these models offer promise, there are risks. Behavioural data from mobile payments and digital transactions can provide an incomplete picture of financial stability. A small business may have frequent transactions but still struggle with debt repayment due to seasonal revenue cycles. Similarly, an individual with regular utility payments may default due to employment instability. These nuances highlight why alternative credit scoring should complement rather than replace traditional models.
Regulation, Risks, and the Path Forward
While alternative credit scoring presents a significant opportunity, it also requires robust regulatory oversight. Data privacy regulations must evolve to ensure financial institutions responsibly handle non-traditional credit data. Brazil’s open banking initiative, which allows consumers to share financial data securely across institutions, offers a useful blueprint for Nigeria. Although Nigeria’s financial ecosystem differs from Brazil’s, fintechs like Mono could be pivotal in facilitating secure financial data sharing for credit assessment.
Additionally, financial regulators must audit the effectiveness of alternative credit models in mitigating default risks. Nigeria’s Central Bank and the Credit Bureau Association must actively assess the performance of these models before mainstream adoption.
Financial institutions must also prioritise transparency when applying alternative credit models. Algorithms determining creditworthiness must be explainable, ensuring applicants understand how their data influences lending decisions. Instances of algorithmic bias have emerged in developed markets, where opaque lending models have inadvertently discriminated against certain demographics. Nigeria must take a proactive approach to addressing these risks before widespread adoption.
The shift towards alternative credit scoring requires collaboration across financial institutions, fintechs, regulators, and consumers. Banks and lenders must integrate alternative data sources into their assessment frameworks while ensuring transparency and fairness. Regulators must create policies that facilitate data-sharing without compromising consumer protection. More importantly, financial education must be prioritised, ensuring that individuals understand how their digital and transactional footprints impact credit access.
A broader cultural shift is also necessary. Many Nigerians, particularly in rural areas, distrust formal financial institutions due to historical experiences with fraud, banking failures, and hidden charges. Expanding credit access must go hand in hand with rebuilding trust in the system. Community-based financial education programs and fintech-driven awareness campaigns can help reshape perceptions and encourage wider participation in the financial ecosystem.
In a country where small businesses and entrepreneurs increasingly drive economic growth, access to credit must be democratised. Alternative credit scoring is not just an innovation—it is a necessity. By adopting global best practices while tailoring them to Nigeria’s unique economic realities, the financial sector can unlock credit for millions, fuelling inclusive economic growth.
However, this transformation will not happen in isolation. Lenders must be willing to embrace new assessment models, regulators must ensure ethical implementation, and consumers must be empowered with financial knowledge. Only then can Nigeria’s credit market truly evolve to serve all.
About the author
Oluwaseun Yusuff is a Fintech and Payments expert, holding an MBA from the University of North Carolina’s Kenan-Flagler Business School in Chapel Hill. He writes from New York City.
