- Increasing economic hardship in Nigeria is driving more individuals to seek loans from digital apps, leading to a surge in unrecovered loans as borrowers struggle to repay debts.
- Lenders, particularly registered ones, are facing significant challenges with non-performing loans, prompting calls for improved regulation and real-time credit registries to curb fraudulent borrowing practices.
- The FCCPC said it is also aware of this concern and working on regulations to address the situation while striking a balance between the survival of the digital lenders and the protection of the borrowers.
More Nigerians are now resorting to credit from loan apps to survive as the harsh economic conditions bite harder, Nairametrics has gathered.
In some cases, there are no plans to repay the loans by the borrowers, while those willing to repay find themselves borrowing from one app to pay another. The lenders said this has also led to a dramatic jump in their non-performing loans (NPLs) as most borrowers are not paying back.
The desperation to get cash is pushing many to search for unregistered loan apps that could give them loans and defame them if they fail to pay. The thinking is that after the defamation and harassment, which include sending messages to all their contacts, they can do without repaying the money.
Borrowers’ forum
Across different social media platforms, especially Facebook and WhatsApp, borrowers from loan apps now have groups and forums through which they share experiences from different digital lenders and compare notes on the level of harassment they are likely to witness from each app should they take a loan and decide not to pay back.
For instance, in one of the forums on Facebook, a member posted:
- “Which loan app can give a loan without checking records, please? I am owing FairMoney and I need another loan.”
This elicited a lot of responses with members listing loan apps that would lend without checking the borrower’s credit record, including some of the registered lenders. Members also provided the list of unregistered lenders that are willing to give loans once the borrower gives them access to his or her contacts.
In another group, a member seeking advice from the group said:
- “Good afternoon house. Please, does anyone have any idea about Wecredit because I’m owing them and now they are threatening me. One of the workers threatened that what he would do to me I would not like it. So, I’m scared.”
Responses to the post came with a lot of assurances from other members that it was an ‘empty threat’. The poster was also advised to block the loan app.
- “Don’t be scared, dear. I’m owing them too. Just deny them permission and also use Truecaller to block spam, at least to have peace of mind,” another member advised.
Lenders Worried
The situation is already affecting digital money lenders, especially the registered ones that are under the radar of the Federal Competition and Consumer Protection Commission (FCCPC). Speaking with Nairametrics, the President of the Money Lenders Association, the umbrella body of registered digital money lenders in Nigeria, Mr. Gbemi Adelekan, said the rate at which Nigerians are now seeking credit from loan apps without paying back is becoming a problem for the lenders.
While noting that the rate at which Nigerians are borrowing from loan apps has increased tremendously in recent times, he said many are not willing to pay back, thus lenders are now having huge non-performing loans.
- “There has been a dramatic increase in people seeking to get loans from loan apps because of the economic situation. People are just going around looking for where to get loans, whether they pay back or not, that’s another issue. That is why we are advising all our members to be very careful because people now believe that the only way out for them is loan apps, whether they have the means to pay back or not.
- “And what they do now is that because some loan apps require them to tokenize their cards, immediately they get the loan they just go to the bank and change the card. So, when it is time for your system to collect the money, you can’t collect it anymore,” he said
Non-performing loans rising
As a result of this development, Adelekan said some of the MLA members now have non-performing loans of between 50 to 60%.
- “People are so fraudulent, and that is why we are saying that even though we support what the government is trying to do to sanitize the system, we need help from them as well in terms of reining in on all these fraudulent acts from customers.
- “While we want to help the economy in terms of increasing the number of people that will have access to credit because the current 2% of 200 million is not taking us anywhere, the non-performing loans are increasing by the day. Some of our members are now having between 50 to 60% non-performing loans. They have to stop and go after people who are owing them,” he said.
Real-time credit registry needed
For Adelekan, the current mode of operation of the Credit Registry in Nigeria is not helping the situation. According to him, because the system is not real-time, borrowers have the leeway to take loans and default from multiple apps before they are detected.
- “You now have people going round the loan apps to borrow; they borrow from one app to pay another, and they continue to go round. They are also looking for new ones that are coming up and are lenient in terms of client acquisition.
- “This is happening because our credit registry is not real-time. Some of these people know that even if they are going to be reported it may be after a month. So, within that month, they would have taken loans from 6 to 7 different apps. And you are going to the credit registry to check without seeing anything about them. We want the credit registry to be up and running in real-time,” he said.
FCCPC’s concern
Meanwhile, the FCCPC, which is trying to bring the operations of the loan apps under control through a registration and guidelines framework, is also not oblivious to the sharp practices of the loan app borrowers.
In a December 26, 2023 media interview, which happened to be his last as the head of the Commission, the immediate past CEO of FCCPC, Babatunde Irukera, admitted that the high rate of default in the digital lending space has become a big problem.
According to him, while the Commission had succeeded in reducing abuse and harassment by the loan apps, Nigerians taking loans from the platforms have continued to default. To address this, Irukera had announced plans to come up with fresh regulations this year.
- “One of the big issues that we’re seeing is that there’s now a significant level of loan default because people are not able to use these unethical and inappropriate loan recovery mechanisms and I’m insistent that you cannot say to me that the only language Nigerians understand is to abuse them. No, I disagree.
- “We must necessarily do the work no matter how hard it is to find a more sensible way to recover loans because I also agree that if these digital money lenders are unable to recover their loans and drop out of the market, it’s a consumer protection problem because of those who need those types of short-term unsecured lending.
- “So, we have to find the balance and so some of the regulations that will come out in 2024 will be a broader approach to responsible borrowing and responsible lending by individuals and corporates. I’m hopeful that the future of what we’re building is that even school landlords would be able to report to a centralized credit system about the conduct of tenants, students, and parents so that we can know each person’s level of fiscal responsibility or credit wordiness,” Irukera had said.
The new Acting Executive Vice Chairman/CEO of the FCCPC, Dr. Adamu Abdullahi, has, however, promised to implement the new regulations.
According to him, the Commission would try to strike a balance between the continuous operations of the loan apps and the customers’ defaulting in repaying their loans.
He noted that despite the challenges, loan apps are playing important roles in the economy.