Pascal Oparada
Operators of lending apps in Nigeria are not having it easy. The rates of defaults by customers have more than doubled in the industry in the last two years.
Exacerbated by the COVID-19 pandemic and the torrid economic situations in Nigeria, lending apps are finding it hard getting their monies back from defaulting customers.
Experts who have monitored the operations of the novel credit givers say their casual approach to loan facilitation exposes them to more risk, especially in countries like Nigeria where identification is a challenge.
Indeed, the financial powerhouses they have built in the short period of their existence are falling apart. On account of rising job losses, borrowers face tough challenges repaying their facilities. Reacting to the rising risks, the lenders seem to have started to learn new trade tricks, the Guardian reports.
For instance, a pioneer operator started readjusting pre-COVID payment terms signed with customers a few months ago. Some of the emails sent during the Coronavirus lockdown informed customers that their payment dates were rescheduled, with some of them asked to repay 10 days earlier than the agreed monthly due dates.
The same operator, it was learned, has restricted loan coverage to Lagos, the Federal Capital Territory, and Rivers State. An employee in charge of a new client said the decision was taken as part of the company’s measures to “reduce the rate of default and mitigate impacts of COVID-19” on its operations.
The majority of the players are rolling back the hitherto ambush marketing the industry is known for, concentrating effort in servicing and recoiling to servicing “reliable customers.”
A marketer also disclosed that they “no longer chase customers to top-up anymore because you may not know what may have happened to their jobs in the past six months. We also do more due diligence to be sure that a job exists. If you grant a loan and there is a default, you are in trouble. So everybody is careful,” reports the Guardian.
Customers of these lending apps give varied reason for defaulting.
Many lending apps have been forced to recalibrate their business models and employ stricter measures in before lending.
A staff of one of the lending apps, Okash owned by OPAY, who spoke to this newspaper anonymously, tells how hard it is getting customers to repay their loans.
According to her, customers give reasons like being in the hospital, loss of jobs and bad economic situations for not paying up.
“Some tell you they lost their jobs, they lost their husbands, parents etc.
“While some will tell you, they are not paying as if it’s their father’s inheritance,’ she said.
She said other customers give excuses of high-interest rates after taking the loans.
She said the apps go as far as deducting directly from customers account in case of defaults.
“And when they know that the company deducts their money, they stop putting money there,” she said.
The many lending apps in the app stores have suddenly become inactive as many of them have either gone bust or have piloted to other things.
Branch, one of the popular lending apps have added investment savings to their business models in order to stay afloat.
While the apps employ aggressive measures such as calling defaulters’ contacts, threatening them with arrests and lawsuits, the numbers of defaulters keep increasing.
Experts believe the measures used by lending apps to recover their loans are not far-reaching enough.
“Calling a random contact of a defaulter is not enough. These apps need to invest in technology that can track an active contact of a debtor,” John Okoro told this newspaper.
“I might have a contact who barely knows me or whom I have not spoken to say like in a year or two. You need to have a facility to tract contacts of siblings, spouses and children of defaulters,” Okoro said.
Godwin Owoh, a professor of Applied Economics and Risk Management expert, told The Guardian that the lending apps industry was a crisis waiting to happen. He wondered how a model with zero-risk measures would survive in a country where a conventional bank fails almost regularly.
Owoh also said the model is exploring the inadequacies of s, which he accused of “abandoning proper intermediation for easy incomes” under a weak regulatory framework. He warned that the industry could trigger the next crisis in the financial industry.
Also, Olaniyi Ali, a former head of Lagos Business Office, First Central Credit Bureau observed that lending apps had no regard for the most basic of creditworthiness and profiling required to determine the integrity of loan applicants. According to him, they must necessarily partner with credit bureaux to determine the creditworthiness of those they lend to.
Ali said the relaxed regulation of the industry was responsible for poor risk management. “The absence of tight regulation of the operation is a major reason the operators have boycotted the risk management regulations,” he said.
