Online lenders battle with defaults as lockdown bites borrowers

Collins Njoku (not real names), a 38-year-old freelance writer with a family of three, received two messages from two online lenders in February and March. He had borrowed N600,000 and N300,000 from each of them.

The two debts are due in September and November 2020 but Collins is unsure how he is going to keep up with the compulsory monthly repayment while at the same time cater to his growing family in the middle of a lockdown that has shut down his income source since March. Lagos where nearly 90 percent of his clients are have been on lockdown – along with FCT and Ogun – since the beginning of April.

The first message took a conciliatory tone.

“Hi NJOKU, your next payment is due in 2 days. If you cannot pay, please email me to tell me why. I’m here to help.”

The message in March from a different lender took a hard line with a familiar threat.

“…failure to pay, we will be visiting your workplace to report you to your employers.”

Njoku defaulted in March and is likely to do the same in April.

“I am not afraid of the threat, I am rather disappointed,” he told BusinessDay. “I am also impressed with the understanding shown by the other company. These are difficult times for everyone.”

On Monday, Carbon, one of the biggest online lenders in Nigeria, said it plans to reschedule loans for some of its borrowers. The announcement has many of Carbon’s customers excited as the tweet the company made received many responses within minutes of posting it on the company’s timeline.

“I have this month to complete my 6-month tenure loan. Kindly consider me for the repayment review,” said one of the customers. “The COVID-19 pandemic lockdown in Lagos affected my workplace which closed down as directed by the government since March 28. No salary for the staff this month.”

Loans (debt) rescheduling refers to restructuring the terms of an existing loan or bond in order to extend the repayment period. It may mean a delay in the due date(s) of required payments or reducing payment amounts by extending the payment period and increasing the number of payments.

Rescheduling loans allow keeping the same principal balance (or reduce it), but creates a new schedule for the loan and if needed, different loan terms.

“To reduce the financial burden on our customers in these difficult times, we are now rescheduling some loans,” Carbon tweeted on Monday. “We will contact you if you’re eligible, so please, keep trying to pay back as much as you can.

Branch International and Kiakia have also offered loan rescheduling to customers with a history of consistent positive performance.

“We are offering repayment extensions to customers who are facing challenges during this time. We are also adapting our operations in line with current realities but with our customers in mind,” Maria Rotilu, country manager of Branch International told BusinessDay.

A global lender, Branch International, has a presence in many African countries.

Kiakia also increased moratorium for some special classes of borrowers, according to the projection of the extent of disruptions the lockdown will affect their operations and cash flows.

On the whole, Kiakia projects about a 1.7 percent increase in the default rate.

Abiola Olajide, co-founder of Kiakia told BusinessDay that it had moved early to insulate its operations from the economic disruptions occasions by COVID-19. One of the steps was extending credit to individuals and MSMEs in industries with higher cash flow resistances to economic turbulence.

“Part of responsible lending is to anticipate the impact a sudden change in the economic weather will have on the personal and business finance of our borrowers. We limit access to credit to those who portend threat of repayment risks,” Olajide said.

Kiakia has also positioned itself by increasing the loan portfolio to the agricultural and food sector. Interestingly, the sector has become the most resilient and essential in the face of the economic downturn.

“It is impossible to find the right MSMEs within this sector and get it wrong,” Olajide said.

Beyond online lenders, the COVID-19 lockdown has impacted the operations of financial technology firms in general. For Social Lender, a platform that enables financial institutions to extend formal financial service to the underserved and unbanked, the best way to respond is by directing its agents to keep their social distance but can follow up with users via telephone. Bade Adesemowo, co-founder of the firm told BusinessDay that Social Lender agents are leveraging heavily on the SMS and USSD channels to enable financial services.