This book critically reviews transnational banking regulations that specifically impact consumer lending in Africa's largest economy. It provides a comprehensive analysis on the politics and economics of financial sector consolidation in an emerging market in West Africa, also covering law, consumer credit, and consumer policy along with a discussion of banking sector reforms heavily influenced by the neoliberal economics paradigm. There have been several developments since the publication of the existing books especially in the area of regulatory theory and social protection that are captured in this book, which will be of interest to researchers, students, and scholars of banking regulation, development economics, and international finance.
Author(s): Philemon Iko-Ojo Omede
Series: Palgrave Macmillan Studies in Banking and Financial Institutions
Publisher: Palgrave Macmillan
Year: 2022
Language: English
Pages: 346
City: Cham
Preface
Acknowledgments
Contents
Abbreviations
List of Legislation
List of Cases
1 Introduction
1.1 Background of the Study
1.2 Research Question
1.2.1 Neoliberalism
1.2.2 Consumer Credit/Debt
1.3 Significance of the Study
1.4 Research Methodology
1.4.1 Background to Interviews
1.4.1.1 Interview Sample
1.4.1.2 Sampling Technique and Limitations of Study
1.4.2 Summary of Interview Findings
1.5 Overview of Book
2 Rationale for Consumer Credit Regulation
2.1 The Utility of Consumer Credit
2.2 The Schools of Thought
2.2.1 Credit as Lubricant: The Permanent Income Hypothesis Theory (PIH)
2.2.2 The PIH and Consumer Borrowing in Nigeria
2.2.2.1 Future Incomes Will Continue to Grow
2.2.2.2 Demand for Credit Is a Choice
2.2.2.3 There Is an Endless Pool of Lenders to Borrow From
2.3 Consumer Credit as a Perilous Product
2.3.1 Consumer Credit Hurts More Than It Helps Low-Income Consumers
2.3.2 Consumer Credit as a Smokescreen for Rolling Back the Welfare State
2.3.3 Consumer Credit Distorts Resource Allocation Within the Economy
2.4 Rationale for Regulating Consumer Credit
2.4.1 Market Construction
2.4.2 Correcting Market Failures
2.4.2.1 Monopoly and Coordination
2.4.2.2 Information Failures
2.4.2.3 Credit Rationing and Adverse Selection
2.4.2.4 Moral Hazard
2.4.3 Prevention of Systemic Risk and Externalities
2.4.4 Behavioural Economics (BE)
2.4.4.1 Hyperbolic Discounting
2.4.4.2 Overconfidence
2.4.4.3 Framing Effects and Status Quo Bias
2.5 A Human Right Rationale for Consumer Credit Regulation
2.5.1 Economic Rights and Human Capability
2.5.2 Consumer Credit as a Human Capability
2.5.2.1 A Right to Consumer Credit
2.5.2.2 Consumer Protection as a Human Right
2.5.3 An American Case Study: The Community Reinvestment Act 1977
2.6 Summary
3 Sources of Consumer Credit Regulation in Nigeria
3.1 An Overview of the Nigerian Legal System
3.1.1 Statutory Law
3.1.2 Case Law/Common Law
3.1.3 International Law
3.2 Legislative Sources of Consumer Credit Regulation in Nigeria
3.2.1 Market-Wide Regulation/Legislation
3.2.1.1 The Central Bank of Nigeria Act 2007
3.2.1.2 Banks and Other Financial Institutions Act 2020
3.2.1.3 Corporate and Allied Matters Act 2020
3.2.1.4 The Asset Management Corporation of Nigeria Act (as Amended) 2010 (AMCON)
3.2.1.5 The Credit Reporting Act 2017
3.2.1.6 The Secured Transaction in Movable Assets Act 2017 (‘STMA’)
3.2.1.7 Federal Competition and Consumer Protection Act (FCCPA) 2018
3.2.1.8 Arbitration and Conciliation Act LFN 2004
3.2.1.9 Sheriff and Civil Process Act LFN 2004
3.2.1.10 Investment and Securities Act 2007
3.2.1.11 Evidence Act 2011
3.3 The Structure of Lending in Nigeria
3.4 Formal Sector
3.4.1 Commercial Banks
3.4.2 Microfinance Institutions
3.5 Semi-Formal Sector
3.5.1 Moneylenders, Hire-Purchase, and Pawnbrokers
3.5.2 Cooperative Societies
3.5.3 Fintech Start-Ups
3.6 Selected Subsidiary Legislation Applicable to Fintech in Nigeria
3.6.1 Mobile Money Regulations
3.6.2 Agent Banking Regulations
3.7 Summary
4 Consumer Credit and Customary Law in Nigeria
4.1 The Scope of Customary Law Under the Nigerian Legal System
4.2 Forms of Consumer Credit Under Customary Law
4.3 Forms of Consumer Credit Under Customary Law
4.3.1 Informal Sector
4.3.2 Markets Emerging in Response to Regulation (‘Black Market’)
4.4 Customary Moneylenders
4.4.1 Family and Friends
4.4.2 Rotating Savings and Credit Associations (ROSCAs)
4.4.3 Vendor Credit
4.5 Jurisdiction Over Informal Credit Contracts
4.6 Summary
5 Paradigms in Consumer Credit Regulation
5.1 Mapping an Evolving Paradigm: The New Approach to Credit Regulation After the Global Recession
5.2 The Reign of the Consumer Borrower
5.2.1 The Legitimation of Consumer Protection Agencies
5.2.2 A Robust Understanding of ‘Fair Treatment’ in Financial Markets
5.3 The Collapse of the Information Paradigm
5.3.1 Form
5.3.2 Format and Plain Language
5.3.3 Key Fact Statements
5.3.4 Consumer Testing
5.4 From Compensation to Apprehension/Prevention
5.5 The New Assumptions About Consumer Borrower Welfare
5.5.1 The Lost Allure of Credit and Reversal of the Democratisation Narrative
5.5.2 Financialisation and the Perpetuation of Class Disparities in Credit Access
5.5.3 Human Rights and Access to Consumer Credit: From Boon to Foil
5.6 A New Paradigm for Credit Regulation?
5.7 Summary
6 A Synopsis of Consumer Lending Patterns in Formal Financial Institutions and Lenders’ Responses to Regulatory Reforms in Nigeria
6.1 Background to Interviews
6.2 Findings: How Formal Lending Practices Respond to Financial Reforms
6.2.1 Unintended Outcomes of Financial Reforms
6.2.2 Prudential Regulation: Banking Consolidation
6.2.3 Credit for Production
6.2.4 Anti-Money Laundering Regulation
6.2.5 From a Regime of Control to a Regime of Transparency
6.3 Summary and Discussion of Findings on Lenders’ Attitudes to Consumer Credit
6.4 Structures of Lending and Consumer Welfare Implications: Formality V Informality
6.5 Commercial Banks and Mfis
6.6 Informal and Semi-Formal Lenders
6.6.1 Family and Friends
6.6.2 Cooperatives
6.6.3 Fintech Start-Ups
6.7 Default Risk and Consequences Across Lending Channels
6.7.1 A Familiar Tale of Corruption and Institutional Weaknesses
6.8 Moneylenders and Extreme Abuses of Consumer Rights
6.8.1 Formal Lenders: Same Medicine, Subtler Methods
6.9 Summary
7 Implications of Findings for Theory and Policy
7.1 The Gulf Between Ideology and Policy in Nigeria
7.2 The Case for Consumer Credit in Nigeria
7.2.1 Consumer Credit as a Form of Social Insurance
7.2.2 Consumer Credit and Institutional Efficiency
7.3 Who Should Borrow in Nigeria?
7.4 ‘Subprime’ Borrowers
7.5 Middle- and Lower-Income Borrowers
7.5.1 The American Model
7.5.2 Digital Credit
7.6 Self-Excluding Borrowers
7.7 How to Protect Consumer Borrowers
7.7.1 From Consumer Access [as an End] to Consumer Welfare in Nigeria
7.7.2 Freedom of Contract and Social Legislation: The Doctrine of Force Majeure
7.8 Non-Debt Income Sources
7.8.1 Universal Basic Income
7.8.2 Consumer Debt and Labour Policy
7.9 Rethinking the Role of Transnational Institutions in Initiating Policy Shift in Nigeria
7.10 Summary
7.11 Suggestions for Further Study
Appendices
Interview Questions
A. Regulator (Central Bank of Nigeria)
B. Regulator (Small and Medium Enterprises Development Agency of Nigeria)
C. Formal Sector Lenders
D. Semi-Formal Lenders (Cooperative Societies and Credit Unions)
E. Official of the Budget Office and National Planning (Ministry of Finance)
Bibliography
Index
