Financial technology (FinTech) platforms are gradually filling the lending gap left by Nigerian commercial banks by creating a new way of accessing credit.
Before FinTech lending platforms became popular in Nigeria, raising money to take a small business from point A to point B was often a herculean task when a deposit money bank was involved. Similarly, when individuals needed cash to meet urgent needs, getting loans to meet those obligations was a nightmare.
But today, platforms like Credit Direct, Paylater, Lidya, Kiakia, Zedvance, Branch, and Renmoney are among emerging credit providers that are helping individuals and businesses with the cash flow required to meet urgent obligations.
Most of these platforms even claim to disburse loans without collateral and within 24 hours, although when interest rates are considered, it could be quite a steep price to pay.
While low interest rates are available, this is often subject to the credit rating of a potential borrower and could be as high as 60 percent when annualised. Ordinarily, such high interest rates would be discouraging for individuals or even businesses.
“Speed to market and convenience,” said Adedoyin Onayemi, head, cognitive risk and innovation, Credit Direct, are why the platform continues to enjoy patronage.
Established in 2007, Credit Direct, a subsidiary of FCMB, has provided N150 billion as loans till date, Onayemi said in response to BusinessDay enquiries. The platform, he said, has offered more credit to individuals and has only a 10 percent default rate.
A three-month loan on Zedvance, another lending platform, attracts about 13 percent interest, while a six-month loan attracts about 25 percent using the live simulator feature on the website. For those desirous of short-term loans for urgent needs, Zedvance, like its peers, could offer a way out.
Commercial banks rarely lend money without collateral, which explains the preference for big organisations and high net-worth individuals.
The result is that only 350 Nigerians are said to be responsible for more than 80 percent of the N5.4 trillion debt portfolio of Assets Management Corporation of Nigeria (AMCON).
The entry of firms that leverage digital technology to provide easy and convenient access to credit has proven that lending to small businesses (and maybe individuals) is not rocket science.
Paylater, a two-year old credit company with a mobile app that has been downloaded one million times, disclosed in its newsletter last month that it disbursed 591,560 loans valued at N13 billion in 2018. This represents over 300 percent growth in loans compared to the previous year.
Kiakia, another two-year-old company, also said in December that it has disbursed over $1 million in peer-to-peer loans.
For Paylater, which is intended to meet urgent, short-term cash needs, loans attract interest rates starting at 5 percent monthly on the first loan.
“Please do not take a Paylater loan if you intend to service long-term debts,” the company advised prospective borrowers on its website.
Maria Rotilu, general manager, Branch International, a digital lending company with offices in Nigeria, Kenya, Tanzania, India and Mexico, told BusinessDay that it has disbursed over 600,000 loans valued at over N5 billion to small businesses and households.
The firm has so far secured over $100 million from international investors, including the World Bank Group’s International Finance Corporation (IFC) and Andreessen Horowitz. The latter is one of Silicon Valley’s venture capital firms, whose previous investments have included Airbnb, Instagram, and Facebook.
The use of credit scoring has been a major breakthrough for the digital lenders. Credit scoring refers to a statistical analysis performed by lenders and financial institutions to assess a person’s creditworthiness. Without the encumbrance of collateral, these digital lenders increasingly rely on individuals’ credit scores to disburse loans.
On its website, Lidya, one of the digital lending platforms, indicates it has disbursed over 3,000 loans and says it has built Africa’s first credit score system for small and medium businesses.
According to Lidya, businesses looking for $500 to $50,000 in working capital are able to apply online or via their mobile phone and get a decision.
To assess credit risk, Lidya says it uses close to 100 data points to evaluate businesses, build a credit score unique to each business, and disburse loans in 24 hours or less.
For banks, it is mainly about the bottom line – safeguarding shareholders’ assets. For majority of the digital lenders, however, it is about filling a void left by banks. From the transaction reports released by some of the digital lenders, it is clear there is no problem of demand.
CALEB OJEWALE & FRANK ELEANYA
