1. Copyright © 2013 CRC Credit Bureau Limited. All Rights Reserved. Nigerian Financial Market Infrastructure and Managing Credit Risks June 4, 2013. 1 Ahmed ‘Tunde Popoola, FCA Managing Director / CEO, CRC Credit Bureau Limited Presented at the 4 th Nigeria Development and Finance Forum (NDFF) 2013, North America Conference at Washington Marriott, Washington DC, United States.

2. Introduction Protocols, Introductions & Welcome Remarks. 2

3. Presentation Outline  Introduction  Update on the Nigerian Financial System & Recent Policy Drivers  Nigerian Financial Market Infrastructure  Managing Credit Risks  CRC’s Role as a Financial Infrastructure  Conclusion 3

4. Nigerian Financial System  Consolidation of the Banking System between 2003- 2005.  The Nigerian Financial Crisis Vs Global Financial Crisis.  Global Crisis influenced by subprime mortgages.  Nigeria Financial crisis influenced by  Capital Market burble  Foreign Investment funds flight and repatriation.  Weak governance regime.  Nigeria is emerging strong from the crisis. 4

5. Capital Market Capitalisation 5 Source: Nigerian Stock Exchange

6. Nigerian Financial System Cont’d. 6 Central Bank of Nigeria Deposit Money Banks: Licensed Micro-finance Banks Primary Mortgage Institutions (PMIs) Commercial Banks Non-interest Banks Discount Houses Finance Companies Merchant Banks Development finance institutions (DFIs) Asset Management companies Leasing companies Bureaux-de- change (BDCs) Mobile Network Operators

7. Low Level of Financial Inclusion 7 ParametersCountries BrazilRussiaIndiaChinaSouth Africa Nigeria Total Population (Millions) 196.71431,2411,34450.59162.5 Total Value of Bank deposits including gold ($’Million) 352.01497.4298.73,254.748.75 36.3 % of Bank account holders 62N/A 63 32.5 ATM Coverage per 100,000 adults as at 2011 119.63152.948.90N/A60.0111.99 Source: World Bank 2011 Data as at 2011

8. Low Credit Penetration 8 ParametersCountries BrazilRussiaIndiaChinaSouth Africa Nigeria Domestic credit provided by banking sector as % of GDP as at 2012 98.339.574.1145.5175 37.5 Private Credit Bureau Coverage to % of adults as at 2012 62.245.414.954.04.1 Source: World Bank 2012

9. Trend in Credit Penetration in Nigeria 9 Source: CBN, 2012.

10. Presentation Outline  Introduction  Update on the Nigerian Financial System & Recent Policy Drivers  Nigerian Financial Market Infrastructure  Managing Credit Risks  CRC’s Role as a Financial Infrastructure  Conclusion 10

11. The Concept of Financial Infrastructure 11 Deposits (Surplus Zone) Loans (Deficit Zone) Infrastructures used are:  Automated Teller Machines (ATM)  Point-of-Sale Terminals  Mobile and Internet Transfers  Cashless policy Infrastructures used are:  Credit Bureaus  Collateral Registries  Legislation and Court System Financial Intermediation

12. Financial Infrastructures Cont’d.  Financial Infrastructures help:  Modernise financial intermediation.  Drive financial inclusion.  Drive innovation.  Foster transparency.  Curb corruption.  Enhance efficiency in service delivery.  Reduces transaction costs. 12

13. Payment Structure in Nigeria 13 Users Payment Services Providers Payment Infrastructure Regulator Channels ATM POS Teller Mobile Internet Instruments Cash Cheques Cards ACH RTGS Providers & Processors Deposit Banks Card Operators NIBSS CSCS Source: EFInA, 2011 ACH: Automated Clearing House RTGS: Real-Time Gross Settlement System CSCS: Central Securities Clearing System NIBSS: Nigerian Inter-bank Settlement System Individuals, Business, Government Channels & Product Transaction Processing Payment methods CBN

14. Cashless Infrastructure 14 Source: World Bank, 2011  ATMs accounts for over 80% in e-payment transactions. However, cash withdrawal and bank enquiries are the most common transactions performed.  The level of inter-operability among payment providers and users have increased. With the scrap of the N100 interbank charges, the use of ATM machines have become acceptable by many.  According to CBN, the number of deployed and active PoS terminals grew from 5,557 as at January, 2012 to over 104,858 by October, 2012 with over 176, 604 being registered.

15. Other Policy Drivers  Mobile Banking and Money Transfer  Cashless Policy  Revised Microfinance Policy  Revised Prudential Guidelines 15

16. Presentation Outline  Introduction  Update on the Nigerian Financial System & Recent Policy Drivers  Nigerian Financial Market Infrastructure  Managing Credit Risks  CRC’s Role as a Financial Infrastructure  Conclusion 16

17. Understanding Credit Risk  Understanding Credit Risk using a simple credit cycle.  Credit risk arises due to moral hazards and adverse selection. For banks in general, loans are the largest and most obvious source of credit risk;. However, there can be other sources of credit risk through the activities of a bank. Banks increasingly face risk in various financial instruments such as interbank transactions, trade financing, foreign exchange transactions, financial futures, swaps, bonds, equities, options, extension of commitments and guarantees, and the settlement of transactions. 17

18. Laying the Foundation for Risk Management  Collaboration among key risk management players.  Establishment of an appropriate credit risk environment and culture.  Operating under a sound credit-granting process.  Maintenance of an appropriate credit administration, measurement and monitoring process.  Ensuring adequate controls over credit risk and adopting a sound internal lending policy.  Use of credit bureaus.  Use of collateral registries.  Compliance to Basel’s Accord. 18

19. Financial Infrastructure: Presence of Credit Bureaus in Africa 19 The countries in are those that uses private credit bureaus in Africa. Ghana is the only country in West Africa with a Collateral Registry.

20. Credit Bureaus in Nigeria  Credit bureaus, also known as credit information services, credit registries, credit reporting agencies or consumer credit reference agencies are organizations that are well established in advanced economies. The bureau compiles information on individuals and corporate organization. These include information on credit repayment records, court judgment and bankruptcies and then creates a comprehensive reports that is sold to business users in form of credit reports, credit scores and other products.  Presently, Nigeria has three private credit bureaus and one owned by the Central Bank of Nigeria. Having credit bureaus places Nigeria in a enviable position as they have enabled the country reach a respectable level in database coverage, improved loan processing speed and costs, reduced selection records and information asymmetry, reduced credit risk and overall enhanced access to credit. 20

21. Function of Credit Bureaus  Credit Bureau provides complete, accurate, and reliable information on credit status and history thus improving the ability of credit providers to make informed lending decisions. 21 Aggregated credit Information Other financial institutions Insurance Banks Telecoms and Utilities Other non- financial institutions Credit Reference Reports & Scores Business Users: Banks Non bank financial Institutions Insurance Companies Telecoms Utilities Rental Agencies Manufacturers Retailers Employers Government Agencies/Regulators Oil and Gas Companies Pharmaceutical Companies Recruitment/Consultancy Firms Public Data Sources

22. Challenges & Prospects Prospects  A large market size.  An improved financial infrastructure.  Improved and well sustained reforms in the financial system.  High investment opportunities and service options.  Reduced risk of cash-related crimes.  Cheaper access to banking services and access to credit.  Improved and greater financial inclusion and economic development.  Seamless multichannel integration. 22 Challenges  Lack of appropriate legislation.  Irregularities in the operations of some of the financial infrastructures such as ATM machines and the POS terminals.  Epileptic internet and telecommunication services.  Incessant network failures.  Limited financial literacy.  Capacity/size of the market (long queues at some ATM machines especially weekends) and limited coverage.

23. The Future  Quick implementation of the national identity project.  Establishment a collateral registry.  Support existing Credit Bureaus to enable them deliver on their mandate e.g. regulations.  The efficiency and transparency of the judicial system. 23

24. Investment Finance Opportunities Top 10 African Destination countries for infrastructure projects, up to February, 2013 CountriesNumber of ProjectsSum of capital invested (US$ million) South Africa134129, 934.0 Nigeria10695,480.5 Egypt8260,164.7 Uganda6317,730.3 Kenya6032,851.5 Algeria3487,154.1 Mozambique3132,085.0 Libya2920,668.4 Tanzania2916,185.1 Cameroon258,470.8 24 Source: African Project Access, Business Monitor International; Ernst and Young analysis

25. Investment Finance Opportunities in Nigeria  Project Opportunities in Nigeria are:  Transport and Logistics infrastructure.  Housing Infrastructure.  Oil and Gas.  Power and Utilities.  Agriculture. 25

26. Presentation Outline  Introduction  Update on the Nigerian Financial System & Recent Policy Drivers  Nigerian Financial Market Infrastructure  Managing Credit Risks  CRC’s Role as a Financial Infrastructure  Conclusion 26

27. Who We Are  CRC Credit Bureau is a private limited company incorporated in June 2006. The Bureau was licensed by the Central Bank of Nigeria in June 2009 and commenced live operations in the same month.  CRC Credit Bureau provides an industry-wide information repository on credit profiles of both consumers and corporate entities. We are the leading credit bureau company in Nigeria with credit information covering commercial banks, non-banking institutions, retailers and utility providers and other credit granting institutions.  Our main objective is to generate and supply reliable and accurate credit information reports on borrowers in the consumer and corporate sectors for permissible purposes.  We serve as a neutral third party service provider to our customers and subscribers. 27

28. Our Shareholders 28 -Investor & Technical Partners -Investors

29. 29 Retailers Oil & Gas Commercial Banks Primary Mortgage Banks Non-Interest earning Institution Travels,Tours & Hospitality Company Federal Government Parastatal Accounting/ Audit Firms Insurance Companies Other Financial Institutions Microfinance Banks Discount Houses Leasing Companies CRC Membership Chart Recruitment/ Consultancy Other Non- Financial Institutions Pharmaceuticals Co-operatives Conglomerates

30. Products & Services 30 PresentlyShort / Medium Term CRC Credit Information Reports CRC Basic Credit Information Report CRC Classic Credit Information Report For both: Consumers(Individuals),Small Businesses and Corporate Fraud Detection File Cross-referencing Fraud scoring Fraud Detection systems Self EnquiryCollections Management Bulk Portfolio RequestsCredit Scoring Credit Risk Report & Review (Referencing)Batch Screening Data Management Monitors & Alerts CRC Financial Education

31. Presentation Outline  Introduction  Update on the Nigerian Financial System & Recent Policy Drivers  Nigerian Financial Market Infrastructure  Managing Credit Risks  CRC’s Role as a Financial Infrastructure  Conclusion 31

32. CONCLUSION  Nigeria financial system is set for the next decade with the aggressive adoption of financial infrastructure for financial intermediation – payments system and access to credit  All efforts are also geared towards improving on the financial inclusion including the introduction of mobile money  Credit bureau is set to change the face of access to lending in Nigeria especially for consumers and SMEs who face the challenges of access to credit  Nigerian banks are taking leadership in Africa with presence in most attractive economies in Africa and with improvements in size and governance  Nigeria is also a hot destination for FDIs due to environmental friendliness, market size and stable polity  We need to address the challenge of power, internet access, unique identification, legislation, etc. 32

33. THANK YOU. 33