The rising cost of living has forced many Nigerians to borrow from online lending platforms, even as default rates rise, BusinessDay has learnt.
Experts said there has been a significant increase in the rate of lending caused by high inflation, poverty, unemployment, and other economic challenges facing the country.
Nigeria’s headline inflation rate, according to the National Bureau of Statistics (NBS), rose for the ninth consecutive month to 21.09 percent in October 2022 from 20.77 percent in the previous month.
The multidimensional poverty index report released last month by the NBS shows that 133 million people are poor in health, education and two other dimensions.
Adedeji Olowe, chief executive officer of Lendsqr, a lending-as-a-service cloud platform for licensed lenders, told BusinessDay that the lending rate increased from 2.5 percent per month last year, to 39 percent per month for loan sharks and nano lenders.
He added that most lending platforms hide their lending and default rate reports from the public in order to protect and accommodate investors.
“The rate of lending and loan default has increased recently amid economic crises in Nigeria. It started in the Covid-19 but has increased over the year,” said Somadila Rejoice, a staff member at Lisgray Associates, a loan recovery agent.
“High lending and the default rate are attributed to inflation, low-income rates, high cost of living, unemployment, and loss of jobs. People no longer meet up with their monthly repayment and most loans have entered bad debt, which can hardly be recovered.”
According to her, most lending platforms also adjusted to accommodate customers by giving those concessions for payments and finding ways to stop interest rates on most occasions.
Sharing his experience, a Nigerian undergraduate who spoke on condition of anonymity said he owes several online loan apps, as he had to borrow to meet up with financial needs in the last six months.
“For the last six months now, I have borrowed from over six loan platforms to meet up with my financial issue. When the Academic Staff Union of Universities called off the strike, I borrowed more than N20,000 each from two platforms, which I have plans to pay off as soon as possible,” he said.
“Many of the platforms usually call as soon as the repayment is due and will go to any length to embarrass and ensure you pay them in due time. So I always consider clearing them off and collecting another while some will not disturb but will remind you to clear off once in a while.”
Stan Egbu, a Lagos-based businessman who always turns to these platforms for rescue in difficult times, said two out of the five people he has contacted have defaulted on the loans they got from online lenders.
“No sane person will borrow without returning back, and what is happening now show you the level of hardship in Nigeria,” Egbu said. “It is very fast and doesn’t require physical presence to borrow online and that’s why people are trooping in but the inability to pay back is what I don’t cherish. Most times you don’t blame them because they don’t have it.”
Egbu said many contacts on his phone have defaulted loans as he has received many calls and texts from the platforms warning him to reach out to the defaulters or stay away from them.
“I have many friends on my contact list who are loan defaulters. They always call me to complain about them asking me to call them to repay their loan,” he said.
Speaking on the increased loan default rates in Nigeria, the experts blamed both the lending platforms and the ecosystem for neglecting important steps that should be taken before giving out loans.
“The Nigerian ecosystem lacks any form of consequences for default, which is why borrowers continue to take advantage of lenders. The market structure is deeply flawed. Then the cost of good decision-making is very expensive. Lenders are paying a lot for credit bureau data and statement services,” Olowe said.
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For Bola Deji, a staff member of one of the tier-one banks, high loan default rates are caused by the inability of the lending platforms to stick to the five credit rules: capacity, capital, condition, character, and collateral.
“The 5Cs of credit is an initiative of the central bank, which provides guidelines for lenders to determine whether to approve you for a financial product. Lenders also use these 5Cs to set loan rates and terms,” he said.
She said these 5Cs serve as a criterion to detect the competence and capacity of the customer, which relate to the ability to repay in due time.
“This assessment in traditional banking is where the lender looks at the location, organisation, undertaking and other details of the customer to see if he is eligible to have access to loan,” she said.
Joseph Oderinde, an associate at EY, attributed the high rate of default to increased cost of living, decrease in standard of living, diversion of loan to an unprofitable business, and poor business performance.
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