How to solve a lot of problems at once in Nigeria

As is often said, Nigeria is a low-trust high transaction cost economy. This means that when two strangers engage in a transaction, the initial assumption on both sides is that the other person should not be trusted. Given the general lack of information, due diligence is almost impossible, so people have to rely on hearsay and trusted references. This general framework increases risk, effort, time and therefore cost on all transactions. Trust is therefore an intangible social value that, when its not there, hampers development perhaps more than any other single factor, whether on an organisational or on a national scale.

Ordinary Nigerians face huge hurdles just to get simple things done. For example, the act of buying an international air ticket (whether to Nigeria, or leaving from) is fraught with difficulty, thanks to a small but consistent percentage of fraudulent transactions. It seems that all the international airlines have special rules for Nigerian customers, which mean that things you can do online and offline if you are not Nigerian, you cannot do if you are.

The root problem is that it is at present impossible to assess trust. The key missing component is therefore a credit ratings agency. Companies such as Experian in Europe have information on many aspects of individual consumers - most especially an assessment of credit worthiness based on past banking history.

Although there's been talk in Nigeria about setting up a Credit ratings agency, there has yet been no action. In order to increase the level of trust in the economy, it is vital and urgent that one is set up. It is a win-win situation - companies (banks, building societies and select vetted private enterprises) would pay to access customer information as part of their risk assessment. Therefore, the agency would make good money, employ people etc. Most of all, it would hugely improve the efficiency of the banking system - the time it takes for instance for a small business loan to be granted to a SME. It would also encourage good fiscal behaviour, as people would know that in order to get credit, they need to be able to service their debt within set guidelines.

A credit ratings agency would therefore be one crucial component of encouraging credit facilities in the banking sector, providing a huge boost to businesses and consumers alike. Without it, Nigeria will remain low-trust, high transaction cost.