Photograph — Investors King

President of the Dangote Group, Aliko Dangote this week joined a host of economic experts in calling for the adoption of proper mortgage financing and consumer credit system in Nigeria. As explained by him, this is crucial in tackling corruption, alleviating poverty and reducing the hardships faced by consumers when buying goods in the country.

“I believe what will help us the most is mortgage financing or consumer credit,” Dangote said during a visit to the National Leader of the All Progressive Congress (APC), Bola Ahmed Tinubu.

Prior to this, the business magnate had stressed the need for the Central Bank of Nigeria (CBN) and other deposit/commercial banks to develop consumer credit products as this would encourage low-income earners to engage more in loan taking. 

So what are mortgage financing and consumer credit, and why does Africa’s richest man believe they are central to his home nation’s economic development? 

Mortgage and consumer credit

Consumer credit is a personal, unsecured debt taken on to buy everyday goods and services such as food, cosmetics and even discretionary items like cars. One of the common forms of consumer credit is a credit card, usually extended by banks, retailers, and others to enable consumers to purchase items immediately and pay off the cost over time with interest.

As Dangote cited in his explanation, if one has a job and needs to purchase goods and services like a car of five million naira, instead of paying it at once, there should be provisions for the individual to pay like N50,000 or N100,000 every month. This means that once you have a job, you should be able to afford most things comfortably. 

Similarly, a mortgage is a loan in which property or real estate is used as collateral. In this case, the borrower enters into an agreement with the lender (usually a bank) wherein the borrower receives cash for other projects using his house as collateral.

A mortgage is mostly used for the purchase of a house and is often referred to as a home loan. It is secured by home buyers without enough cash on hand to purchase the home. Over time, the borrower repays the loan with interest until he owns the property free and clear. If the borrower stops paying the mortgage, the lender can foreclose the property.

Importance to economic development

As seen in most developed countries, consumer credit and mortgages serve as catalysts for economic development as it improves consumer spending and ultimately living conditions of the people. At the individual level, consumer credit allows people to get an advance on income to buy products. While mortgages make larger purchases possible for individuals lacking enough cash to purchase a house upfront.

Moreover, consumer credits are like the wheels the economy runs on. It is the everyday demand and purchases that keep companies profitable and hiring new workers. As at early this year, the average American had a credit card balance of $5,700, according to Federal Reserve data.

Consumer credits and mortgage also serve as major indicators of economic growth or contraction. If consumers overall are willing to borrow and confident they can repay their debts on time, the economy gets a boost. If consumers cut back on their spending, indicating concerns about their own financial stability in the near future, the economy will contract.

In Nigeria, making credit schemes and home loans available is crucial. Recent statistics show that the housing deficit in the country stands at over 17 million while the mortgage financing gap is estimated at N30 trillion ($250 billion). Despite the huge housing deficit and a population of nearly 200 million people, mortgage financing in Nigeria is still far from meeting the needs of its people.

“Most people go into corruption because they are worried about how to get a roof over their head, or how to buy furniture because we live in a society where everything you’re buying you pay cash,” Dangote added. 

However, contrary to the stance of technocrats on the importance of credit schemes and home loans in achieving real economic development, they are yet to be given proper attention by the Nigerian government. 

An adverse effect of this is that Nigerian consumers have less to spend, thereby reducing their contribution to the national Gross Domestic Product (GDP), Nairametrics says. Hence, Dangote’s call for the government’s intervention in building proper mortgage financing and consumer credit system in the country.

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