Nigeria’s banking system has failed in offering adequate financial services to its people creating demand for high-interest micro-lending platforms.
Back in August 2017, Henry Apama-Aka discovered a lending platform known as Paylater which didn’t require any paperwork. The 27-year old entrepreneur and chef applied for a 10,000 Naira loan ($27) despite being sceptical initially. Within 10 minutes, Henry had received the loan amount in his bank a/c. Ever since, he has serviced seven Paylater loans in total and is in the process of settling an eight 100,000 Naira ($270) loan.
Apampa-Aka used the loan to open a small restaurant in Lagos named Sir Henry’s Barbecue. The restaurant offers private as well as commercial catering services. Apampa-Aka attributes ease of access to funding as well as trust in the digital platform as the main reasons for using Paylater several times. Paylater is among the few payday loan lending platforms that have been established in Nigeria recently (since 2015).
Nigeria is barely out of a recession and is already at risk of plunging into another since large businesses started moving abroad. Since Nigerians aren’t the best savers, surviving another recession will be a daunting task. According to World Bank statistics, less than 33% of small to medium size businesses are able to get loans in Nigeria.
Financial institutions in Nigeria have an exhausting credit process coupled with high interest rates and the need for collateral. This has made bank loans unattractive. When you consider other factors like the stringent property laws making property ownership difficult, it’s easy to see why regular Nigerians can’t secure bank loans.
Reforms that made payday loan lending attractive
The introduction of the BVN (Bank Verification Number) by Nigeria’s central bank has made Paylater among other payday lenders like Kwikcash and Lidya gain entry as credit providers in Nigeria. The BVN utilizes biometric security features and links to all accounts making it the 1st true record for Nigerians. Prior to 2015, bank records weren’t necessarily shared. Defaulters could move to other banks freely and get loans. This is no longer the case.
According to Paylater co-founder, Chijioke Dozie, Paylater has data scientists that help the lender with credit scoring. This year alone, Paylater has offered 300,000+ loans to Nigerians and boasts of approximately 90,000 active users every month. According to Dozie, the BVN system brings new levels of accountability to borrowers from platforms like credit unions gaining ground in Nigeria.
Although he acknowledges hurdles like high interest rates, Dozie states that interest charged on Paylater reduces as trust is built. The loan amounts available also increase which is the same with Kwikcash. According to the MD of Mines Nigeria, the company which owns Kwikcash, the platform’s terms match the current reality – making collateral-free loans available in Nigeria considering there is no lending infrastructure.
Paylater is available on Google as well as Apple stores. Kwikcash can be found via USSD, a feature which is widely used by a majority of Nigeria’s unbanked population. Although Kwikcash is relatively new, the lender has processed 1 million+ loans according to Sowho.
According to Kwikcash customer Emeka Eze, the lender is a supplementary income provider – a source of cash as you wait for your next pay cheque. Eze explains he isn’t able to survive with his salary past 20th of every month prompting him to borrow before he receives his next salary. Kwikcash is very attractive due to easy access; however, interest charges are still a major problem. Eze confesses to having a close friend who defaulted on their loan even after being granted four loan extensions.
According to economist Oluwatosin Ajani who lives in Lagos, these platforms offer temporary solutions for Nigeria’s under banked population. The platforms are offering a service that should be provided by banks. What’s more – the platforms charge high interest since there is very little to no competition according to Ajani.
Since Nigeria is under banked, payday loan services are available to a select class of individuals which doesn’t help expand payday lending which has a potential to boost growth, reduce unemployment and lift many Nigerians from poverty. Banks in Nigeria aren’t inclined to offer loans to small & medium scale enterprises since they don’t contribute to a huge chunk of the profits large companies and multinationals promise to offer.
According to Apampa-Aka, micro lenders provide a prosperity route. He will be able to secure a 1 million naira loan equivalent to $2,754 soon. Although payday lenders in Nigeria aren’t perfect, they are doing something to help his business grow.