The number of companies approved to provide loans to Nigerians through digital platforms popularly known as loan apps has jumped to 320 this September from 284 in May.
This came as the lenders continued to see surge in demands for loans as the economic hardship in the country bites harder.
According to the lenders, applications for loans by Nigerians have quadrupled this year.
The 320 companies now serving the digital loan market are those that have secured approval from either the Federal Competition and Consumer Protection Commission (FCCPC) or the Central Bank of Nigeria to provide the service.
A look at the database of the FCCPC shows that 264 of the digital lenders have been granted full approval by the Commission, while 42 others are operating with conditional approval. The database also includes 14 companies licensed by the CBN.
Why more firms are going into digital lending
Although the FCCPC said it is bringing digital lenders to get registered under its Limited Interim Regulatory/Registration Framework and Guidelines for Digital Lending, as a way of sanitizing the space, the ease of the registration has become the catch for many to go into the business.
“Right now, the first thing that you would want to do if you’re in the financial sector, is to go into digital lending.
“If you think of microfinance, the regulation is tighter and the licence is costly. This is why many companies are coming into the space,” the Chairman of the Money Lenders Association, the umbrella body of the registered loan app companies in Nigeria, Mr. Gbemi Adelekan told Nairametrics.
“More people are coming because the entry barrier is not as high as CBN-regulated financial institutions,” he added.
Demands for credit surge
Beyond the ease of entry, people coming into the digital lending space are also seeing huge opportunities with the rise in demand for quick loans by Nigerians, though fraught with high risks of non-payment.
- According to Adelekan, many Nigerians are now relying on credit to survive and the loan apps come in handy as they offer instant loans.
- He noted that demands for loans have now quadrupled what was being recorded during the COVID-19 pandemic when there was a surge.
“Let me use our own company, KwikPay Credit as an example. During the COVID period, when everybody was sitting at home, give and take, weekly, we would get applications of like 1,000.
“But now, we are receiving between 5,000 and 6,000 applications weekly. A lot of people want loans,” he said.
- He, however, noted that most of the loan applicants are not qualified for the loans because they lack a good credit history.
- According to him, 90% of the applicants, after passing BVN verification usually in the credit history aspect.
“One of the first things we do is to check whether an applicant has a financial footprint. Unfortunately, out of 5,000 applications, the system will reject 4,500 of them instantly.
“Once you have an outstanding loan that you haven’t paid, the system filters you out. People don’t realize that their credit history matters,” Adelekan said.
He added that some lenders lower their risk analysis because they want to acquire customers by doing only BVN verification.
This set of lenders, he said, give out nano loans of N3,000 to N5,000 and comes with high interest rates to cover for the risks.
Tackling the menace of unregistered loan apps continue
Despite the rise in the number of digital leaders that have registered with the FCCPC and secured approval to operate, hundreds of other unregistered lenders are still playing in the market and getting patronage from desperate borrowers.
- As a result of their continuous atrocities which include defaming and harassing their customers through their contacts, the FCCPC said it has now placed 88 loan apps under its watchlist as it continues to work out modalities to sanitize the digital lending space, while 47 have been delisted from the Google Play Store.
- According to the Executive Commissioner of Operations, at the FCCPC, Dr. Adamu Abdulahi, the main aim of the registration and approval of digital lenders in the country is to identify the companies behind the apps through its Interim Regulation to be able to hold them responsible for any infraction.
- He noted that before the regulation, there was no way to trace any of the companies operating the loan apps.
- Abdullahi said the Commission is also trying to strike a balance between the continuous operations of the loan apps and the customers’ defaulting in repaying their loans, adding that despite the challenges, loan apps are playing important roles in the economy.
What you should know
The FCCPC under the leadership of its former boss, Babatunde Irukera had come up with the Limited Interim Regulatory/Registration Framework and Guidelines for Digital Lending, 2022, in collaboration with the Joint Task Force (JTF) to promote fair, transparent, and beneficial alternative lending opportunities for Nigerians.
The registration was also necessitated by the disturbing activities of loan apps in the country, especially the illegal ones, over allegations of rights violations, and unfair practices, among others.
As of May this year, Nairametrics reported that the number of registered loan apps in the country had increased to 284. Between then and now, 36 more companies have been approved, bringing the number to 320.