Lending apps surge 80% as personal loans hit N7.5trn

The number of approved digital lenders in the country has surged by 79.77 percent since April 2023, reflecting the rising credit appetite among Nigerians.

This has coincided with a 329.28 percent year-on-year increase in personal loans to N7.52 trillion in March 2024, according to the Central Bank of Nigeria (CBN).

Data from the Federal Competition and Consumer Protection Commission (FCCPC) indicate that the number of digital lenders grew to 311 in September 2024 from 173 in April 2023, indicating a 79.77 percent rise over the period.

The FCCPC registers digital lenders under a ‘Limited Interim Regulatory/Registration Framework and Guidelines for Digital Lending 2022,’ which governs the digital lending space and ensures that registration and approval are prerequisites for companies seeking to operate.

The FCCPC has two approval categories for lenders: full approval and conditional approval. The number of fully approved lenders grew to 269 from 119, while conditional approvals decreased to 42 from 54 from April 2023 to September 2024. Additionally, 14 lenders on the FCCPC’s list were approved directly by the CBN.

Rising Consumer credit

According to the CBN, the surge in consumer credit can be attributed to the increasing popularity of loan apps, and rising inflation which stood at 32.15 percent in August 2024.

In Q1, 2023, the CBN noted, “The increase in banking system liquidity and enhanced access to formal financial services, especially through fintech channels, that accompanied the naira redesign policy, boosted consumer credit.”

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In Q1 2024, it stated, “The substantial growth in consumer credit was attributable to inflation expectations.”

A recent report from Piggyvest revealed that four in 10 Nigerians are in debt, and 26 percent owe loan apps. Another study by SBM Intelligence found that 27 percent of Nigerians across different income categories now turn to loan apps to cope with their living expenses amidst record inflation.

“Rising cost directly impacts the need to access more funds,” said Adeshina Adewumi, chief executive officer/ founder of Trade Lenda.

“Demand for loans has increased double fold because of the hardship in the country, and a lot of people are turning to loan apps,” corroborated Gbemi Adelekan, president of the Money Lenders Association, the umbrella body of registered digital money lenders in Nigeria.

“Demand (for loans) is growing at about 5 percent per month,” Babatunde Akin-Moses, co-founder of Sycamore, remarked.

Loan apps are popular for their accessibility and speed. In 2023, Olayemi Cardoso, CBN governor, predicted that mobile money and digital lending would drive growth in the service sector, with more people turning to borrowing.

While the rising demand for loans has fuelled growth in the loan app sector, regulatory efforts to clean up the industry have also contributed to the increase in registrations in 2024. Akin-Moses stated, “Some companies had delays in getting licensed on time and just finalised the process.”

However, he noted that the cost of borrowing has also increased. On September 24, 2024, the CBN raised its Monetary Policy Rate (MPR) by 50 basis points, bringing the benchmark interest rate to 27.25 percent.

“MPC has increased the cost of funds, which has made borrowing more expensive for customers,” said Akin-Moses. He pointed out that this has shot borrowing rates to between 3 percent and 12 percent monthly, depending on the lender.

High interest rates, combined with rising poverty levels, have led to an increase in loan defaults. “Per-capita growth in Nigeria has stalled. Poverty and food insecurity are high, exacerbating the cost-of-living crisis,” the International Monetary Fund recently said.

“There has been an increase in loan defaults industry-wide,” Akin-Moses, earlier quoted, said. This has led to a cycle of bad debt for operators in the space, he noted.

Adelekan, president of the Money Lenders Association, stated, “Many people take a certain amount and don’t repay.”

To protect themselves, loan apps have introduced technologies to assess borrowers’ income sources through bank statement analysis, ensuring 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 added.