• Tuesday, July 23, 2024
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Apps drive N1.22trn loan demand in one year

Apps drive N1.22trn loan demand in one year

Nigerians borrowed N1.22 trillion over the past year as a surge in digital lenders improved access to credit for many grappling with worsening economic conditions.

Between January 2023 and January 2024, personal loans surged by N1.22 trillion to N3.03 trillion.

This coincides with an increase in the number of digital lenders in the country, which saw a 60 percent growth in 2023.

In its first quarter economic reports, the Central Bank of Nigeria stated, “The increase in banking system liquidity and enhanced access to formal financial services, especially through fintech channels that accompanied the naira redesign policy, boosted consumer credit.”

Read also: Personal loans surge 14% as Nigerians battle collapse in disposal income

Babatunde Akin-Moses, co-founder of Sycamore, said, “Yes, a surge in loan apps can be attributed to this growth, along with inflation, which has led to more demand.”

Loan apps’ demands have generally risen, Adeshina Adewumi, chief executive officer/ founder of Trade Lenda, corroborated. “There has always been a $29 billion growing deficit in Nigeria. So, N1.22 trillion in one year is good, but we are still scratching the surface to close the gaps.”

In its January economic report, the CBN noted that personal loans grew due to record-high inflation.

“Total consumer credit outstanding increased by 11.9 per cent to N3,823.51 billion in January 2024, driven, mainly, by the rise in personal loans on the back of heightened inflation. A disaggregation of consumer credit revealed that personal loans increased by 14.3 per cent to N3,028.72 billion from N2,648.89 billion in December 2023…,” the CBN further said.

According to the Federal Competition and Consumer Protection Commission (FCCPC), the number of approved digital lenders in Nigeria has surged by 64.16 percent from April 2023 (173) to 284 as of May 2023.

The FCCPC registers digital lenders under a ‘Limited Interim Regulatory/Registration Framework and Guidelines for Digital Lending 2022,’ which governs the digital lending space and ensures that registration and approval are prerequisites for companies seeking to operate.

The rising cost of living, driven by record-high headline inflation, which hit 33.95 percent in May, has weakened the purchasing power of many Nigerians.

Muda Yusuf, chief executive of Center for the Promotion of Private Enterprise (CPPE), said, “The impact on citizens welfare is inestimable. The effect on SMEs is troubling. There is elevated social discontent, driven by increasing joblessness and hunger.”

According to Piggyvest, four in 10 Nigerians are in debt, and 26 percent owe loan apps. A study by SBM Intelligence revealed that 27 percent of Nigerians across different income categories rely on loan apps to keep up with their living expenses in the wake of record inflation.

Accessibility and speed are critical drivers for Nigerians using digital lenders despite high interest rates. Olayemi Cardoso, the CBN governor, expects mobile money and digital lending to drive growth in the service sector, with more people turning to borrowing.

Read also: Firm disburse N1.5bn loan to SMEs in nine months

However, inflation and corresponding spikes in interest rates (now at 26.25 percent as of May 2024) are causing lenders to change their approach to avoid defaults.

“Let’s just say all lenders add a spread to the Monetary Policy Rate (MPR) depending on their risk appetite,” said Akin-Moses, earlier quoted.

“High interest rates are to secure digital lenders from “unsecured and instant lenders. That’s one of the reasons,” he explained.

“But there are also costs to disbursing loans: KYC costs, credit bureau costs, payment gateway, bank changes, etc. Every loan has these costs.

“We have remained prudent in deploying resources to only those who meet our credit underwriting criteria. This reduces the chances of those with tendencies to default. In summary, I would say that we have maintained zero default since last year, August 2023, while still following up with our backlog underperforming loan portfolio to ensure recovery,” Adewumi of Trade Lenda, earlier quoted, added.