The digital lending landscape in Nigeria is witnessing remarkable growth, marked by a surge in approved loan app companies. The Federal Competition and Consumer Protection Commission (FCCPC) and the Central Bank of Nigeria (CBN) have given the green light to a total of 263 companies, showcasing a significant rise from the 211 recorded at the close of 2023.
The FCCPC’s database reveals that out of the 263 companies, 215 have received full approval to operate as digital lenders, while an additional 38 have secured conditional approval. The remaining 10 companies are licensed by the CBN to offer loan app services. It’s important to note that each approved company may operate multiple apps, providing a variety of loan types.
This surge in digital lending approvals comes amid concerns about the escalating number of non-performing loans in the sector and the proliferation of illegal apps enticing individuals with collateral-free loans and exorbitant interest rates.
Factors Driving the Digital Lending Boom
Industry experts attribute the increasing interest in the digital lending space to the appeal of high-interest rates charged by these platforms. However, Mr. Gbemi Adelekan, President of the Money Lenders Association, clarifies that high-interest rates are specific to lenders offering small, short-term Nano loans. He emphasizes that the primary reason for the influx of new players is the booming fintech sector’s ease of entry.
Adelekan points out that the bandwagon effect is in play, with commercial banks obtaining separate digital banking licenses to venture into digital lending. He notes that the trend reflects the Nigerian entrepreneurial spirit, where businesses flock to burgeoning sectors. However, he acknowledges the associated risks, with some players exiting due to difficulties in recovering debts and the rise in non-performing loans.
Challenges and Impact on Borrowers
As more Nigerians turn to loan apps to cope with economic challenges, concerns arise about rising non-performing loans, with borrowers struggling to repay. The lending sector acknowledges that some borrowers resort to borrowing from one app to settle debts with another, contributing to an increase in non-performing loans.
Digital lenders contend that interest rates are determined by the risk associated with the loans. The President of the Money Lenders Association asserts that rates for installment loans have remained below 5% per month for the last two years. However, he acknowledges that Nano loans, characterized by higher risks, may have interest rates of up to 15%.
Unregistered Loan Apps and Regulatory Response
Despite the growing number of registered digital lenders, unregistered players continue to thrive, attracting desperate borrowers. The FCCPC has placed 88 loan apps under its watchlist, addressing issues such as harassment and defamation of customers by unregistered lenders.
Dr. Adamu Abdullahi, Acting Executive Vice Chairman/CEO of the FCCPC, reveals plans for new regulations to address challenges in debt recovery by loan apps, aiming to strike a balance that safeguards consumers while ensuring responsible lending practices.
