Nigerians have borrowed a staggering N7.5 trillion as personal loans amid rising inflation and declining purchasing power.
According to the Central Bank of Nigeria (CBN), personal loans increased to N7.52 trillion in March 2024, indicating a 329.28 per cent year-on-year rise.
This is as the number of approved digital lenders in the country has surged by 79.77 per cent since April 2023, reflecting the rising credit appetite among Nigerians grappling with rising inflation that has weakened purchasing power and driven up costs.
Data from the Federal Competition and Consumer Protection Commission (FCCPC) indicates that the number of digital lenders grew to 311 in September 2024 from 173 in April 2023.
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. Additionally, the CBN approves 14 lenders on the FCCPC’s list.
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.”
In Q1 2024, it stated, “The substantial growth in consumer credit was attributable to inflation expectations.”
As economic pressures mount, many citizens are turning to quick online loans, often without the need for collateral.
Popular apps like FairMoney, Branch, and Carbon facilitate these loans, with amounts ranging from N2,000 to N6 million.
However, concerns over unethical lending practices persist, prompting regulatory efforts to ensure consumer protection in the rapidly growing digital lending sector.
A recent report from Piggyvest revealed that four in ten Nigerians are in debt, and 26 per cent owe loan apps. Another study by SBM Intelligence found that 27 per cent 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,” chief executive officer/ founder of Trade Lenda, Adeshina Adewumi, said in a BusinessDay report.
“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 per cent per month,” Babatunde Akin-Moses, co-founder of Sycamore, remarked, according to BusinessDay.
Loan apps are popular for their accessibility and speed. In 2023, Olayemi Cardoso, the 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 sector, regulatory efforts to clean up the industry have also contributed to the increase in registrations in 2024. Akin-Moses stated, “Some companies delayed 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 per cent.
“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 said. This has led to a cycle of bad debt for operators in the space.
Adelekan, the 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.
We’ve got the edge. Get real-time reports, breaking scoops, and exclusive angles delivered straight to your phone. Don’t settle for stale news. Join LEADERSHIP NEWS on WhatsApp for 24/7 updates →
Join Our WhatsApp Channel
