Before online lending firms became popular in Nigeria, raising money to take a small business from point A to point B was like a perilous journey through a desert, especially when a deposit money bank was involved.
Banks in Nigeria complain that small businesses are not attractive loan prospects; however they can accept SMEs deposits much of which they give to big organisations and high net worth individuals at attractive interest rates.
Deposit money banks (DMBs) dominate the credit market in Nigeria, representing between 85 per cent and 90 per cent (by loan value) of the credit data in the country, according to data from the Central Bank of Nigeria (CBN).
DMBs rarely lend money without collateral which is why they prefer big organisations and high net worth individuals. The result is that only 350 Nigerians are responsible for more than 80 per cent of the N5.4 trillion debt portfolio of AMCON, the bad debt bank.
Notwithstanding, the entry of firms that leverages digital technology to provide easy and convenient access to credit has proven that lending to small businesses is not rocket science as banks made everyone think.
For banks it is mainly about the bottom line; safeguarding shareholders’ assets, however for majority of the digital lenders it is about filling a void left by banks. From the transaction reports released by some of them, it is clear there is no problem of demand.
Maria Rotilu, the general manager of 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 top 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.
Paylater, a 2-year old credit company with a mobile app that has been downloaded one million times, disclosed in its newsletter last week that it disbursed 591,560 loans valued at N13 billion in 2018 which represents over 300 per cent growth in loans compared to the previous year.
Kiakia, another 2 year old company also disclosed in December that it has disbursed loans valued at over $1 million in peer-to-peer loans.
Kudi.ai also reported that its monthly transaction grew by 25 per cent, from 28,000 in January to 700,000 monthly transactions.
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 access a person’s creditworthiness. Without the encumbrance of collateral, these digital lenders increasingly rely on individual’s credit scores to disburse loans.
