Many Nigerians who resort to digital lenders for funds have discovered that their situations have really improved with many being unable to promptly settle their loans; BENJAMIN UMUTEME reports.
In 2020, the coronavirus pandemic struck the world leading to a shutdown of economies globally; the result was massive job losses.
Even Nigeria was not spared the impact of the pandemic. For several months, the economy was at a standstill as companies cut down their staff.
The result was that to survive, many people resorted to borrowing through any source that they could.
Rise of digital lending
The rise in digital lending has been rapid, as more and more people have started to embrace the convenience of online transactions. As a result, we are seeing many more opportunities for customers to access credit without having to go through the traditional brick-and-mortar banks.
Borrowers can easily get loans from anywhere in Africa without needing to travel or spend money on transport. The process is also much faster than it used to be because there’s no need for filling forms or waiting around at the bank branch!
Lenders offer loans across borders with ease – no longer do they have to find local partners; instead they can partner directly with other financial institutions and so secure their business.
In Nigeria it has helped many people access for the first time. It has also helped to increase financial inclusion.
According to available data, in 2019 alone, there were more than 55 million mobile money transactions – and in the last couple of years, that number has seen a significant rise with digital lending gaining more popularity among Nigerians who need quick loan.
Entrapment
While it was good news for many initially, it later turned into a nightmare as many discovered that they had walked into a trap with their eyes open.
For Adoniyi Musa, it was a very harrowing experience. In 2021, he had thought he could quickly get a loan to solve a pressing family issue, little did he know that “he had with his own leg walked into a trap.”
According to him, even thought he knew the interest rate was on the high side, the pressure to solve the pressing family challenge was a priority.
After getting the loan and addressing the challenge, he started repaying the loan. But due to a delay by his employees to settle their obligations, he started defaulting and that was when he realised that he had fallen into a trap.
According to Adoniyi, he was not only harassed but the interest grew in leaps and bounds. At the end of three months, the N80, 000 he collected had risen to about N200, 000.
He told Blueprint Weekend that after repaying the loan, he quickly deleted the app from his phone.
“I continue to regret the day I listened to advice to patronage digital lending companies,” he said.
He told the newspaper that “it would be better for anybody to loan for other sources of getting finance than patronising an online loan company.
No matter the situation, patronisng an online company will be the last thing for me.
In a chat with this reporter, Adefolarin Olamilekan, a political economist, noted that digital lending companies represent alternative initiations in global financial development in most developing and emerging economies.
He said that patronage of digital lending channel is for immediate and short-term credit which is majorly to take care of personal and businesses needs and financial demands.
Meanwhile, this type of credit facility comes with its own condition and terms, many of its beneficiaries fail to understand.
“This is particularly as beneficiaries are interested in getting financial aid as quickly as possible to fix their immediate challenges.
Digital lending are not bad on its own, neither is the loans facility a problem; rather the business environment pushing many into borrowing
Olamilekan said the peculiarity of Nigeria’s business environment makes the credit facility worthless.
“Imagine taking a loan to take care of business, the cost of operation and production would end up reversing return on investment to negative.
“More so, businesses are suffocated due to competition from importation of the same goods that can be easily produced locally. We must not fail to mention the militating multiple taxes of government at both the national and sub national level. Added to this is an infrastructure deficit in the ecosystem that has crippled local initiatives and hindered SMEs growth and expansion,” he said.
For the political economist, it is strictly business; since the CBN rate has no maximum cap.
Addressing the challenges
In order to reduce or eliminate some of the problems associated with online lending, there must be strict regulation of their activities by regulatory bodies empowered in that regard.
Olamilekan proffered that the regulators should be able to unravel the identity and the way these online lending companies operate.
“Digital lenders must reduce their unfriendly business lending rate to accommodate the peculiarity of the business ecosystem.
“People seeking digital lending credits must endeavor to always read and reread the terms and conditions of the loans they want. Frustration should not cloud their sense of judgment.
“Lastly, the government must take appropriate action to tackle our national economic infrastructure deficits. So as to reduce the high cost of doing business in Nigeria,” he said.
