The number of companies that have been granted permission to offer loans to Nigerians through digital platforms, which are commonly referred to as “loan apps,” has increased from 284 in May to 320 this September.

This occurred as the country’s economic hardship intensified, resulting in a growing demand for loans from lenders.

The lenders have reported that Nigerians have quadrupled the number of loan applications this year.

The digital loan market is currently served by 320 companies that have received approval to provide the service from either the Federal Competition and Consumer Protection Commission (FCCPC) or the Central Bank of Nigeria.

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A review of the FCCPC’s database reveals that the Commission has granted full approval to 264 digital lenders, while 42 others are operating with conditional approval. Additionally, the database comprises 14 organizations that have been authorized by the Central Bank of Nigeria (CBN).

Why are more companies entering the digital lending market?

The ease of registration has become the draw for many to enter the business, despite the FCCPC’s announcement that it is bringing digital lenders to register under its Limited Interim Regulatory/Registration Framework and Guidelines for Digital Lending as a way of sanitizing the space.

“At present, the initial step for those in the financial sector is to engage in digital lending.”

“When considering microfinance, the regulatory framework is more stringent and the licensing process is more expensive.” Mr. Gbemi Adelekan, Chairman of the Money Lenders Association, the umbrella organization of registered loan app companies in Nigeria, stated  “This is the reason why many companies are entering the space.”

“The entry barrier is not as high as it is for CBN-regulated financial institutions, which is why more people are coming,” he continued.

Rapid increase in credit demand

In addition to the ease of entry, individuals who are entering the digital lending sector are also recognizing significant opportunities due to the increased demand for fast loans among Nigerians, despite the high risk of non-payment.

Adelekan asserts that a significant number of Nigerians are currently dependent on credit to ensure their survival, and loan applications are advantageous due to their ability to provide immediate loans.

He observed that the demand for loans has now quadrupled since the COVID-19 pandemic, when there was a surge.

“Let me illustrate with our organization, KwikPay Credit.” We would receive approximately 1,000 applications each week during the COVID-19 period, when everyone was at home, exchanging information.

“However, we are currently receiving 5,000 to 6,000 applications on a weekly basis.” He stated that a significant number of individuals are interested in obtaining loans.

Nevertheless, he observed that the majority of the loan applicants are not eligible for the loans due to their inadequate credit histories.

He stated that 90% of the applicants typically fail the credit history aspect after passing the BVN verification.

Our initial step is to determine whether an applicant has a financial history. Regrettably, the system will immediately reject 4,500 of the 5,000 applications.

“The system excludes you if you have an outstanding loan that has not been paid.” Adelekan stated that individuals are unaware of the significance of their credit history.

He further stated that certain lenders reduce their risk analysis in order to attract consumers by conducting solely BVN verification.

He stated that this particular group of lenders provides nano loans ranging from N3,000 to N5,000, which are accompanied by high interest rates to mitigate the risks.

Further attempts to address the issue of unregistered loan applications

Hundreds of unregistered lenders continue to operate in the market and receive patronage from desperate borrowers, despite the increase in the number of digital leaders who have registered with the FCCPC and received approval to operate.

The FCCPC has placed 88 loan apps under its watchlist as it continues to develop modalities to sanitize the digital lending space, as a consequence of their ongoing atrocities, which include defaming and harassing their customers through their contacts. Additionally, 47 loan apps have been delisted from the Google Play Store.

The primary objective of the registration and certification of digital lenders in the country, as stated by Dr. Adamu Abdulahi, the Executive Commissioner of Operations at the FCCPC, is to identify the companies responsible for the apps through the Interim Regulation in order to hold them accountable for any infraction.

He observed that there was no method of tracing any of the companies that operated the loan applications prior to the regulation.

Abdullahi stated that the Commission is also attempting to achieve a balance between the continuous operations of the loan apps and the defaults of customers in repaying their loans. He also noted that loan apps are playing significant roles in the economy, despite the challenges.

What you should be aware of

The Limited Interim Regulatory/Registration Framework and Guidelines for Digital Lending, 2022, were developed by the FCCPC under the leadership of its former boss, Babatunde Irukera, in collaboration with the Joint Task Force (JTF). The purpose of these documents is to encourage fair, transparent, and advantageous alternative lending opportunities for Nigerians.

The registration was also required due to the alarming activities of loan apps in the country, particularly those that were illicit, which were accused of violating rights and engaging in unfair practices, among other things.

Report has it that the number of registered loan applications in the country had increased to 284 as of May of this year. 36 additional companies have been approved since that time, bringing the total to 320.