The Challenge for Banks and Fintechs After Buhari’s Address to Nigerians

The Challenge for Banks and Fintechs After Buhari’s Address to Nigerians

President Buhari has spoken on Covid-19, and he dropped a market-shaking sample: three month repayment moratorium on all government loans. Pressure will now mount on private lenders like banks and fintechs.

Furthermore, I have directed that a three month repayment moratorium for all TraderMoni, MarketMoni and FarmerMoni loans be implemented with immediate effect.

I have also directed that a similar moratorium be given to all Federal Government funded loans issued by the Bank of Industry, Bank of Agriculture and the Nigeria Export Import Bank.

For on-lending facilities using capital from international and multilateral development partners, I have directed our development financial institutions to engage these development partners and negotiate concessions to ease the pains of the borrowers.

As I have noted in an exclusive video to Tekedia Mini-MBA participants, I expect many companies and even private debtors to invoke force majeure – “unforeseeable circumstances that prevent someone from fulfilling a contract” – to avoid lenders going after collateral where applicable. My recommendation to the Industrial Court is to develop a template immediately on how these matters could be resolved as there would be lawsuits. As I write, and as a former banker, I know that interests are running on most loans even though only limited commercial activities are happening in Nigeria. 

So, if you think someone will pay those interests when his or her workers are at home, you will be surprised when things normalize. 

Coronavirus will reshape ordinances in markets once we get over it. President Buhari’s speech shows the government is temporarily freezing interests to its debtors, making it a solid reference point for lawyers to argue in industrial courts for their clients. Most lawyers would argue that once the governors declared some businesses non-essential, forcing them to “close”, and being materially affected, beyond their controls, force majeure could apply and all interests on the loans for that period should be vacated.

For Tekedia Mini-MBA participants, a video would go live tomorrow on the Week 8 board on how to prepare to give your business a chance.

Comments on LinkedIn On This

Comment #1: Interesting times with strategic measures to be designed and implemented. Thanks for the Insight. Truly like you rightly envisaged Prof. “Coronavirus will reshape ordinances in markets once we get over it”. Looking forward to how the Nigerian Finance Coys will adhere and adapt to the temporary directive by the President.

My Response: “Looking forward to how the Nigerian Finance Coys will adhere and adapt to the temporary directive by the President.” Boardrooms will be busy tomorrow because matching Nigeria’s govt on this moratorium could be challenging, and not adhering to it is simply calling for lawsuits from customers.

Comment #2: This is an interesting take on the President’s speech. Hopefully, the court will use the lawsuits that will result from this situation to set a precedent for matters such as this in Nigeria.

As for the ethics of the bank’s partial application of the freeze on interest accumulated on investments during holidays, I tend to think that the fault is partly that of low awareness on the part of the general public, partly a shortcoming on the part of regulatory/consumer protection agencies, and partly that of a general lack of will on the part of Nigerian lawyers to take on institutions. It would be hard to imagine that none of regulatory bodies or major lawyers know about this.

Lastly, I hope this Covid19 induced disruption, just like it is doing in other areas of our lives, will compel us to reexamine our banking and lending rules and reduce the opaque and shady practices and inequities.

Comment #3: Good insights Prof. When US slashed interest rates, I thought Nigeria will do the same or attempt to go near. But I think MPC maintained status quo. I don’t think there is also any measure on easing the burden of repayment of commercial loans that matches the Federal Government’s gesture.  A lot of businesses may crash while rebooting. CBN and Bankers’ Committee need to troubleshoot now that these at-risk businesses are shutting down, hibernating or operating on safe-mode.

The U.S. Federal Reserve does two key things – works to keep the U.S. dollars stable (by reducing inflation) and maximize employment through interest rates. It has an edge – the currency is convertible with solid export market. But for CBN, we know maximizing employment is not one of the things it does practically. Without that, tracking ease on lending to say SMEs would never be a priority (MPC becomes muted). In all cases, what CBN does in Nigeria is determined by the price of crude oil as it has no non-oil-affecting tools to drive impactful visioning system in Nigeria.

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