Research from the National Longitudinal Phone Survey (NLPS), titled ‘COVID-19 Impact Monitoring’, which was conducted by the National Bureau of Statistics (NBS) has revealed that only 9% of Nigerian households obtained loans from banks and microfinance institutions between March to August 2020.
According to the survey, loans taken since mid-March have been predominately informal in nature, with over 55% obtained from friends or relatives. In addition, loans obtained from formal sources were lower with only 9% of respondents obtaining loans from banks and microfinance institutions, while a further 16% of the respondents obtained loans from cooperatives and savings associations.
Why this matters
The pandemic affected the livelihoods of Nigerian households, forcing many to take out loans, in order to meet their current obligations. Corroborating this fact, a part of the recently released NBS survey read thus;
“About 1 in 4 households were already indebted prior to the pandemic, while nearly one third have taken out new loans since the onset of the pandemic. Poorer households were more likely than richer households to have loans taken before the start of the pandemic, that they were still repaying. However, the opposite occurs with new loans; with households in the higher quintiles being more likely to have taken new loans than poorer households. This shows that the pandemic has impacted the finances (and livelihoods) of households across the whole income distribution, and not only the most vulnerable.”
In light of this reality and accompanying the harsh economic consequences of the pandemic, CBN introduced some measures as a way of palliative targeted to households and firms, like the N50 billion COVID-19 credit facility for households and MSMEs. Therefore, the recent survey indicates barriers faced by Nigerian households to obtain formal loans in the face of the crisis, indicating that this might have turned households to friends and relatives for loans.
The breakdown of the survey showed that 55.6% of the respondent households obtained loans from family, friends, and relatives; 16.2% from cooperatives and savings association; 9.0% from banks and microfinance institutions; 6.8% from women group/association; and 17.8% from others.
The breakdown is depicted by the chart below;
Purpose of loan
Just like what was obtainable before the pandemic, new loans were obtained for self-sustenance and business purposes such as paying for foods, farm, and non-farm business inputs, etc. However, there is some sharp contrast as regards the purposes for which the loans were taken prior to, and during the pandemic. Buttressing this point is a part of the survey that read thus;
“About 51% of households that obtained loans after the pandemic began, used these loans for purchasing food, compared with 41% of households with existing loans, indicating that loans taken since the start of the pandemic were used to sustain households’ basic needs. There is no difference in the share of loans taken to pay for health expenses when comparing loans taken before and after the pandemic, but the share of loans being used for education expenses was substantially reduced, either due to the timing of the survey (at the end of the school year) or due to most schools being closed, as part of the mitigation efforts by the government. A substantial share of households with both new and existing loans are concerned about repayment, with more than 70% of households reporting that they are either very worried or somewhat worried about being able to repay their loans.”