Pros and Cons of a Credit Economy (Part 1 of 5)

Credit Economy

President Tinubu has appointed Uzoma Nwagba as the CEO of the Nigeria Consumer Credit Corporation (CrediCorp), with the vision to transform Nigeria into a credit economy in order to reduce pervasive poverty while curbing endemic corruption.

Experts argue that the lack of access to consumer credit is a major factor in widespread poverty in Nigeria. CrediCorp aims to address this issue. Additionally, some believe that corruption among civil servants stems from their inability to afford basic necessities. CrediCorp is also expected to tackle this problem.

In this edition, we begin to explore the complexities and benefits of a consumer credit economy to help CrediCorp refine its strategies and propositions.

Rising credit constraints often have a detrimental effect on productivity growth, prompting many countries to adopt a credit economy. However, this approach is controversial. The pertinent question is: “Why has personal credit sparked so much commentary recently?”

Research from the US highlights two common views on personal credit in an economy. The first view is that credit use involves living beyond one’s means, historically seen as a moral failing and a potential cause of economic problems. The second view, which gained prominence in the US since World War II, is that personal credit has grown uncontrollably, resulting in a flood of personal debt.

Contrary to the first view, borrowing resources now and repaying them later does not increase a consumer’s lifetime spending capacity. The exception is when lenders, such as charities, do not expect repayment. Thus, lending and borrowing only alter the timing of spending, not the total resources available.

However, variability in future employment and income among borrowers can affect loan repayment, posing risks. While these risks do not change the amount of resources involved, they do affect which party ultimately retains them.

In subsequent parts, we will delve deeper into the intricacies of a credit economy, examining both its advantages and disadvantages to provide a comprehensive understanding of its impact on society.


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