MEMO to NIGERIAN BANKS: YOU MIGHT AS WELL CALL IT GUARANTOR, INSTEAD OF REFEREE

Most foreigners will not believe I even had this problem while most Nigerians will not believe I couldn’t solve it. Well, here’s my story.

This June I applied for a current account at FCMB. The marketer who attended to me was very helpful and I was able to get an account number at the end of the meeting. Still, I had to get two references to complete the opening process.

Now, getting references to open a bank account wasn’t new to me. I did the same when I opened a savings account at First Bank a couple of years ago. Though, being a returnee, I found it weird then that a bank would ask for references to open an ordinary savings account - at the time I thought it was because I was new in the country.

Anyway, I was so sure I’d get the references for the current account within days. Oh, how wrong I was.

See, I wanted to open what FCMB called a “classic” current account, meaning a regular current account that’s not a salary or corporate account. That’s when my problem started.

For two months I searched and searched for someone with a regular current account. No luck. Shocking as it may sound, I actually didn’t know anyone who had such an account; they all had either a salary or corporate account.

Turns out many Nigerians actually have this problem of getting bank references, which typically has to be from "someone who knows you well”. And what most people do to solve the problem is to cajole strangers into giving these references. I wasn’t comfortable with doing that.

Finally, late last month I got tired of the whole search and closed the premature account. FCMB asked if I wanted to open a savings account instead but I declined. I don’t know if that would have sidestepped references but I didn’t bother to ask. Saving is for losers anyway.

So I’ve been wondering. If people now get strangers to give these references, why do banks still ask for them when it’s not a loan or credit line you’re after? Is it some anachronistic KYC (Know Your Customer) mandate from the Central Bank?

Are the references proxy for a credit reference like the one a consumer credit agency like Equifax would have provided? If so, why can’t the banks get together and set up a credit agency? If they can collectively establish a payments processor like Interswitch, I don’t see why they can’t establish a consumer credit agency.

Or, is it the typical herd mentality of Nigerian banks to do what competitors are doing rather than innovate?

All told, I’ve never heard of any bank prosecute a referee for fraud committed by an account holder they recommended. If this had happened I’m pretty sure it would have made headline news and no one would ever give a reference again.

So Nigerian banks should stop making it difficult for people to open accounts, especially since this contradicts the whole cashless economy spirit. And I’m talking about “real” accounts like savings and current accounts, not all these mobile money accounts that don’t work when you need them the most.  

UNEMPLOYMENT RATE or PAYROLL: WHICH IS A BETTER GAUGE of the JOBS MARKET?

Last week, the U.S. Fed released its monthly statement on monetary policy (http://www.federalreserve.gov/newsevents/press/monetary/20140319a.htm) in Washington, D.C. Often released the day after the Federal Open Market Committee (FOMC) meeting on interest rates, the statement created some confusion in the market about whether the Fed will henceforth consider the unemployment rate in setting interest rates.

Every first Friday of the month, the U.S. Department of Labor releases data on the health of the labor market. This data includes the unemployment rate and payrolls, i.e., the number of jobs employers created.

Soon after the Fed statement release and the following press conference it was in the business media that the Fed will no longer consider the unemployment rate when setting interest rates (http://finance.fortune.cnn.com/2014/03/19/fed-unemployment-rate/). Although i didn't listen to the press conference, I read and reread the statement and, honestly, i didn't see anything like a ditching of the unemployment rate in that statement. However, I'm not well-versed in Fed Speak, so i may be lost in translation.

Nonetheless, if it is true that the Fed will now give the unemployment rate the cold shoulder, then this is a welcome development. Other countries may do it differently but the U.S. Department of Labor uses a household survey to determine the unemployment rate.

This is an unreliable way to gauge the true health of a labor market.

For instance, if someone is not working but this person is for whatever reason not looking for a job, will the survey say this person is unemployed? I don't know if it does but it will be wrong to do so, because a household survey can't truly capture the willingness to work. Besides, people tend to lie a lot on surveys, especially when it's not face-to-face.

A more reliable metric to gauge the health of the jobs market is the non-farm payrolls, which is the number of people employers actually hired.

My Suggestion

If the Department of Labor really like surveys and insist on using one for the unemployment rate, then i suggest they survey employers for the number of employees they have and express this aggregate as a percentage of the overall working-age population. This will give an employment rate, and one minus this figure is the unemployment rate.

What do you think of my suggestion?