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High inflation rates force Nigerians to look for alternatives

By Michelle Qiao and Larry Ye Apr. 28, 2021

Nicole Kim Art


Resulting from a crash in oil prices, Nigeria’s inflation rate has risen substantially due to significant reductions in the country’s gross domestic product. According to Reuters, Nigeria’s annual inflation rate since 2016 has been in double digits and worsened during the pandemic. The inflation rate in January 2021 rose to 16.47 percent, causing food prices to rise and weakening Nigeria’s currency, the naira.


Nigeria’s high inflation rate and weak currency prevent its residents from obtaining small business or project loans. Additionally, most Nigerian financiers require very high credit scores or property from a choice location to use as collateral from borrowers for a loan, as stated by BTCManager. For those that are approved to get a loan, the high-interest rates are near impossible for the borrower to pay and inflation makes it difficult for borrowers to use the funds for their intentions. Thus, many Nigerians are seeking alternative methods of borrowing and storing money for their needs.


One solution to combat high-interest rates and inaccessibility to loans comes from informal African savings arrangements, best known as susus. Each member of a susu group, typically made up of around 12 friends, colleagues or neighbors, contributes a fixed amount of their earnings to the group fund each month. Then, the total sum of their collective savings is given to one member of the group on a rotational basis. With pooled cash, members can finance their monetary necessities without having to pay interest or be approved for a loan. A study published in Innovations for Poverty Action in 2017 found that susu groups helped increase the amount and longevity of businesses in African communities while also increasing monthly business profits. However, susus were not successful in ameliorating food security and total household income in these regions.


Each member of a susu group, typically made up of around 12 friends, colleagues or neighbors, contributes a fixed amount of their earnings to the group fund each month.

“Susu groups are a great way for people to fund projects compared to getting a loan, as there is no need to pay interest and since everything is prepaid, members of the group would not have to stress about paying the money back,” Junior Sean Yang said.


Another solution that some Nigerians are turning to is storing their money in Stablecoins, a type of cryptocurrency. However, unlike other cryptocurrencies such as Bitcoin, which are quite volatile, Stablecoins seek to combat inflation by offering price stability and are often backed by other currencies or commodities such as the U.S. dollar and gold. Xend Finance, a decentralized finance platform based in Nigeria, hopes to make investing in Stablecoins more accessible to Nigerians. This way, Nigerians can ensure that their savings are not subject to high inflation rates and keep the value of their money.


“Cryptocurrency is a good way to combat inflation, especially Stablecoins, which hold value better than the naira. I would also advise Nigerians to invest a small amount of money into Bitcoin, which is volatile but has greater potential for growth. Many institutions, banks and even companies are investing in Bitcoin, so I feel that it now has credibility to back it as well,” Sophomore Michael Que said.


As stated by BBC, Nigeria ranked third place in 2020 for top cryptocurrency trading volumes after the U.S. and Russia, making over $400 million of transactions.

However, platforms like Xend Finance face hurdles in Nigeria due to the Central Bank of Nigeria’s (CBN) crackdown on accounts that trade cryptocurrencies. According to Decrypt, on Feb. 5, the bank announced that they would close all accounts that bought, sold or traded cryptocurrencies. Facing backlash from the Nigerian population, the CBN later clarified that it would not ban individuals from trading cryptocurrencies, but banks would not be allowed to work with cryptocurrency companies. Despite uncertainty in cryptocurrency regulations, Nigeria’s cryptocurrency sector is thriving as Nigerians seek methods to combat rising inflation rates and bypass bank restrictions. As stated by BBC, Nigeria ranked third place in 2020 for top cryptocurrency trading volumes after the U.S. and Russia, making over $400 million of transactions.


As the rising inflation rate shows no signs of slowing down, and the economy continues to suffer from the pandemic, Nigerians have no choice but to look for alternatives. Susus and cryptocurrencies are some of the solutions that they have devised but without support from the government, Nigerians may need to search for even more new ideas.

 

About the Contributors

Michelle Qiao

Staff Writer


Michelle Qiao is a sophomore at Leland High School and a staff writer. She loves to play volleyball and spends her free time reading, drinking coffee and watching Pixar movies.









Larry Ye

Staff Writer


Lawrence Ye is a sophomore at Leland High School and a staff writer for the Leland Charger Account. He likes to swim and travel and loves his pet dog named Meatball.

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