The country’s organized banking system is unable to address people’s financial vulnerabilities, thus opening up space for high-interest microcredit platforms.
In August 2017, Henry Apampa-Aka heard about a lending platform named Paylater, which does not require any paperwork. Despite his initial skepticism, the then 27-year-old chef and entrepreneur applied for a loan of 10,000 naira ($ 27) – the smallest loan he could ask for. In less than 10 minutes, the loan was disbursed and credited to his bank account. He has since repaid six more loans to Paylater and is currently in the process of repaying his seventh loan of 100,000 naira ($ 270).
Apampa-Aka used the loan money to open a restaurant named Sir Henry’s Barbecue in Lagos, which includes private and commercial catering services. It was the ease of access and the confidence offered by the digital platform that prompted him to resort to the loan agency on several occasions.
Paylater is one of the few payday loan platforms that has emerged in Nigeria recently, especially since 2015. Barely released and risk of entering another recession, the Nigerian economy is collapsing due to the relocation of large companies abroad. Surviving a financial downturn will be a difficult task as Nigerians are not good at saving money. According to the World Bank, less than one in three small and medium enterprises is able to access loans or credit facilities in Nigeria. But critics say the figure is the result of an ambitious effort by the World Bank and other stakeholders to help lift poor Nigerians out of poverty.
Banks in Nigeria have a bad credit reputation. The process is exhausting, and the high interest rates associated with the need for collateral make bank loans unattractive. With Nigeria’s strict property laws, it is difficult to own a property, and people applying for loans from ordinary banks cannot put any property as collateral.
“My uncle lost his house and everything because of the bank after taking out a loan. Banks are interested in defaults, despite the economic situation that prevailed at the time. Apampa-Aka explains.
The introduction of the Bank Verification Number or BVN by the Central Bank of Nigeria has brought companies like Paylater, Kwikcash and even Lidya into the credit provider space in Nigeria. the BVN is the first real record for Nigerians using biometric security features while being linked to all bank accounts. Prior to 2015, bank records were not necessarily shared and banks ran the risk of defaulting debtors turning to other banks for loans. The BVN is a sort of social security number representing each individual in all banks and credit unions, adding a layer of trust.
According to Chijioke Dozie, co-founder of Paylater, “It’s important to give loans that people need and don’t necessarily want. We have an in-house team of data scientists who help us with the credit scoring. In 2018 alone, Paylater made more than 300,000 loans to Nigerians and has around 90,000 active monthly users. The BVN system has brought a new level of accountability to people taking loans on the platform as credit unions gain traction in the country. “But even with credit unions, the Nigerians on our platform are still ready to repay the loans, even though they may take a long time to repay.” Dozie explains.
Microcredit users. however, do complain that the platforms’ interest rates are generally high. Apampa-Aka took out the loans at an interest rate of 22%. On other platforms like Kwikcash, loans are 15%, but with a strict repayment period of 14 days. But, Dozie explains that as trust is built on the platform, interest rates are lowered and loan amounts available increase – same with Kwikcash. Adia Sowho, Managing Director of Mines Nigeria, the company that owns Kwikcash, explains: “The terms reflect the current realities of providing unsecured credit in Nigeria in the absence of lending infrastructure. Loan terms – amount, term, interest – are tailored to users and their behavior. Good borrowing behavior will also favorably affect conditions.
While Paylater is available through apps on the Google and Apple stores, Kwikcash is available through USSD – a feature widely used, especially by people in the unbanked segment of the Nigerian economy. Although still a relatively new business, Kwikcash has processed over a million loans, according to Sowho.
For Emeka Eze, Kwikcash is an additional income provider – a gap while waiting for the next paycheck. “Because Nigeria is difficult, my salary account is usually dangerously low on the 20th and I have to borrow until the next salary is paid,” he explains. Kwikcash has become attractive for its ease of access, but interest charges remain an issue, something that just needs to be budgeted for. Eze’s close friend once defaulted on the loan despite up to four loan extensions. Everyone he had contacted on his phone received a text saying he owed a certain amount of money. “I was embarrassed because people who know him know we’re friends and think I could be that kind of person.” Eze explains, but the stakes could be higher. Embassies are now requesting credit reports from credit unions, which could hamper future projects.
But for Oluwatosin Ajani, an economist living in Lagos, these platforms are only a temporary solution to a bigger Nigerian problem of underbanking. “These companies are providing a service that banks should be providing and at the moment they are able to charge high interest rates because there is no competition,” Ajani said. “As Nigeria is already underbanked, these services are only available to a certain class of people and it does not help develop businesses that can provide jobs to lift Nigerians out of poverty.”
Banks are not inclined to give loans to small and medium enterprises in Nigeria because they do not provide the big profits that multinationals and large corporations promise to provide.
For Apampa-Aka, micro-lenders are a path to prosperity, in particular thanks to the line of credit that he has carefully cultivated. Soon he will be able to borrow one million naira ($ 2,754). While lenders are not perfect, they help your business grow.
Source: TRT World