The number of approved digital lenders in the country has increased by 79.77 percent since April 2023, demonstrating Nigerians’ growing credit appetite.
According to the Central Bank of Nigeria (CBN), this has happened at the same time as personal loans have increased by 329.28 percent annually to N7.52 trillion in March 2024.
The number of digital lenders increased by 79.77 percent, from 173 in April 2023 to 311 in September 2024, according to Federal Competition and Consumer Protection Commission (FCCPC) data.
The “Limited Interim Regulatory/Registration Framework and Guidelines for Digital Lending 2022,” which regulates the digital lending industry and ensures that approval and registration are requirements for businesses wishing to operate, is the framework under which the FCCPC registers digital lenders.
Lenders can apply for full permission or partial approval from the FCCPC. Between April 2023 and September 2024, the number of conditionally approved lenders fell to 42 from 54, while the number of fully approved lenders increased to 269 from 119. Additionally, the CBN approved 14 lenders directly on the FCCPC’s list.
Increasing Credit For Consumers
The CBN claims that rising inflation, 32.15 percent in August 2024, and the growing use of loan applications are to blame for the spike in consumer credit.
In Q1, 2023, the CBN stated that “the naira redesign policy, which accompanied the increase in banking system liquidity and enhanced access to formal financial services, especially through fintech channels, boosted consumer credit.”
“The substantial growth in consumer credit was attributable to inflation expectations,” it said in the first quarter of 2024.
According to a recent Piggyvest survey, 26% of Nigerians owe loan applications, and 40% of the country’s population is in debt. According to a recent SBM Intelligence report, 27% of Nigerians in all income brackets now use loan applications to pay for their daily needs in the face of historically high inflation.
According to Trade Lenda’s founder and CEO, Adeshina Adewumi, “increasing costs directly impacts the need to access more funds.”
“The country’s hardship has doubled demand for loans, and many people are turning to loan apps,” confirmed Gbemi Adelekan, head of the Money Lenders Association, Nigeria’s governing organisation for licensed digital money lenders.
“The demand for loans is increasing at a rate of approximately five percent per month,” Sycamore co-founder Babatunde Akin-Moses stated.
Apps for loans are popular since they are quick and easy to use. The governor of the CBN, Olayemi Cardoso, forecast in 2023 that the rise in the service sector will be driven by digital lending and mobile money since more people would be borrowing.
The loan app industry has grown due in part to the increased demand for loans. Still, the increase in registrations in 2024 can also be attributed to regulatory initiatives aimed at improving the industry. “Some companies had delays in getting licenses on time and just finalised the process,” Akin-Moses said.
But he also pointed out that borrowing has become more expensive. The CBN hiked the benchmark interest rate to 27.25 percent on September 24, 2024, by 50 basis points in the Monetary Policy Rate (MPR).
According to Akin-Moses, “MPC has raised the cost of funds, which has made borrowing more expensive for customers.” He mentioned that, depending on the lender, this has caused borrowing rates to skyrocket to between 3 and 12 percent per month.
Loan defaults have increased due to high interest rates and rising poverty rates. Nigeria’s per capita GDP growth has stopped. The International Monetary Fund has stated, “Poverty and food insecurity are high, exacerbating the crisis of rising costs of living.”
The sector as a whole has seen a rise in loan defaults, according to Akin-Moses, who was previously mentioned. He pointed out that this has put operators in the industry in a vicious circle of bad debt.
According to Adelekan, head of the Money Lenders Association, “a lot of people take something and don’t pay it back.”
Loan applications have developed technology to evaluate borrowers’ income sources using bank statement analysis in order to safeguard themselves and make sure they do not have bad loans.
“We are ready to help the economy, but people should be ready to repay the loans they get from us,” Adelekan went on to add.
