Abraham McLaughlin:

Across Africa, cash has long been king. Want to buy a car? You’d better save enough to pay for the whole thing up front or get a loan from relatives or friends. But now there’s a credit boom. In the next year, for instance, 500,000 new credit cards may be issued in Kenya; a dramatic jump from the current 100,000 cards in this nation of 31 million people. Credit will help African economies grow faster, economists say. It may also curb corruption by reducing use of untraceable cash. And, for better or worse, it’s tilting people away from traditional African reliance on family and community toward Western-style individualism.

Africa’s credit boom is driven by the global spread of a small, but crucial, piece of economic infrastructure — the credit bureau. These agencies compile individual financial histories and provide the dossiers to lenders when a person applies for loans or credit cards. The data enable banks to judge accurately whether a person is too great a credit risk. The earliest credit bureaus sprang up in the US in the 1830s, but they started spreading to developing nations only recently, in part because the World Bank now encourages their adoption. And now they’re coming to Africa. Credit bureaus are springing up in Uganda, Rwanda, Nigeria, Zimbabwe, Mozambique, and elsewhere. To be sure, credit cards can be abused, and their proliferation may lead some Africans to get buried in debt. The threat of credit-card fraud is another danger. For now, perpetrators are only fined the cost of the card’s plastic. But credit cards help solve two key economic challenges, says Margaret Miller, a World Bank economist. First, “a fundamental problem in Africa is the migration of debtors” — a person getting a loan at Bank A, defaulting on it, and then going to Bank B for another loan. Until now, Bank B hasn’t had any way to know this person is a huge credit risk. So banks have typically given credit cards only to a select few.

Already this has begun to change. Last quarter, for instance, the Kenya division of London-based Barclays Bank had six people voluntarily walk in and repay debts. The reason: They had been blacklisted and could not get credit elsewhere until they had settled with Barclays.

The second issue: “The biggest problem for businesses in Africa isn’t profit and loss — it’s cash flow,” says Mills. Without credit, consumers must save up before making big purchases. Retailers just have to wait while the consumer saves. This creates “a logjam, and the only way to clear it up is to introduce credit bureaus,” says Mills. Now banks and retailers can start extending credit to many more people, enabling consumers to buy now and pay later. This creates a risk of bankruptcies and great indebtedness. But it also “represents a way to democratise access to credit” — enabling more people to jump-start their economic future, says Miller. In Kenya last year, Barclays doubled the number of credit cards it had issued. Also, last year just seven Kenyan banks were issuing credit cards. Now 16 are. One reason: They’re big money makers. Interest rates on Kenyan cards are between 36 to 50 per cent per year. Since most Kenyans get paid once a month, credit cards help with month-end emergencies. In fact, credit card symbolises a new lifestyle. — The Christian Science Monitor