Dash for debt sees 64% surge in naira loan apps

The total number of approved digital lenders in Nigeria has surged by 64.16 percent since April 2023, reflecting the growing credit appetite of Nigerians facing weaker purchasing power and higher prices.

According to the Federal Competition and Consumer Protection Commission (FCCPC), the number of digital lenders rose to 284 in May 2024 from 173 in April 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 FCCPC has two approval categories for lenders: full approval and conditional approval. The number of fully approved lenders grew to 232 from 119, while conditional approvals decreased to 42 from 54. Additionally, 11 lenders on the FCCPC’s list are approved directly by the Central Bank of Nigeria (CBN).

The growth in the population of digital lenders coincides with the growing demand for personal loans. According to the CBN quarterly economic reports, Nigerians borrowed N740 billion between January and September 2023.

The CBN attributes the surge in consumer credit to the increasing popularity of loan apps and other fintech channels.

The rising cost of living, driven by record-high headline inflation, which hit 33.69 percent in April, has weakened the purchasing power of many Nigerians. According to Piggyvest, four in ten Nigerians are in debt, and 26 percent owe loan apps.

“Rising cost directly impacts the need to access more funds,” Adeshina Adewumi, chief executive officer/ founder of Trade Lenda, recently told BusinessDay.

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.

Speaking at the launch of the Nigerian Economic Summit Group 2024 Macroeconomic Outlook Report recently, Cardoso said, “The services sector is expected to maintain its dominance, driven by mobile money adoption, increased government partnerships, and expanded digital lending offerings.”

A high rate of loan defaults has also followed the increasing loan demand.

“Nigerians have perfected the method of not paying and defaulting, knowing that nothing may happen to them,” said Adedeji Olowe, the founder and chief executive officer of Lendsqr.

In December, Babatunde Irukera, who was at the time the chief executive officer of the FCCPC, said: “One of the big issues that we’re seeing is that there’s now a significant level of loan default.”

To deal with this spike, some digital lenders have employed unethical debt recovery methods, which the FCCPC frowns upon. Due to these practices, the FCCPC has delisted 47 lenders who will be unavailable for download on Google Play, and placed 88 on a watchlist.

The Nigeria Data Protection Commission is also investigating over 400 data privacy breach cases involving digital lenders.

To address these challenges, digital lenders recently told BusinessDay that they are re-evaluating their business strategies and employing stricter measures before disbursing loans.

“We now analyse to ensure they (Nigerians) are capable and willing to pay based on all the available data,” Gbemi Adelekan, president of the Money Lenders Association, the umbrella body of registered digital money lenders in Nigeria, explained. “Some lenders are using data on phones to analyse customers. This is because people are borrowing without the intention to repay.”