• Loan app operators in Nigeria are currently lamenting the potential loss of their business due to new regulations by the FG.
• FG has also compelled Google to withdraw all unlicensed loan apps from their play store.
• The operators now fear that with the new regulations, their debtors may never pay back the loans they are owing.
Loan App
Hundreds of loan app operators are currently in a state of limbo following the Federal Government’s refusal to include them in the recent list of operators licensed and approved to operate in Nigeria.
A few weeks ago, the FG through the Federal Competition and Consumer Protection Commission (FCCPC) announced that 173 digital lending applications have been approved to operate in the country. Of the listed 173 loan apps, only 119 have full approvals while the other 54 currently have conditional approvals.
Going by this new development, the others that are not licensed by the FCCPC, are now considered illegal and are not allowed to legitimately operate in Nigeria unless they meet the approval process in the future.
This, therefore, leaves the operators in a state of confusion as many of them already have a large number of loan defaulters who are yet to pay back and now may not bother paying back as a result of the regulation of the lending sector.
The rise of loan apps in Nigeria
Online lending platforms in Nigeria have existed for more than a decade, but their activities became more pronounced in the last six years when hundreds of them began to appear everywhere, both online and on Android and iOS stores.
The rising cost of living in Nigeria has pushed further the demand for soft loans, which on the adverse, comes with short repayment periods and high interest rates.
Chuka Nnwadike, a Lagos-based banker, told WEEKDAYS Smart News that Nigeria’s patronage of loan apps, rather than the traditional banks is predicated on the swiftness by which the loans were granted, and in most cases without demand for collateral.
He said:
Data shows that most Nigerians are poor. Some people need loans as little as N5,000 to get by. A bank will not give you N5,000 loan without requesting collateral and having you sign different documents. There’s even no telling if the loan request can be granted swiftly. But with loan apps, loans are granted and received almost immediately.
Many Nigerians have come to depend on these loan apps and there’s often no clear-cut way for borrowers to descend the legitimate from the illegitimate. Most borrowers do not care if regulated or unregulated, they are more interested in a platform that can loan them money at the time needed.
Nigerian loan apps’ illegal activities draws FG’s attention
The need for the Federal Government to regulate online lending became long overdue and necessary when loan defaulters were beginning to be harassed by loan apps which were now acting like loan sharks.
According to findings, some of the loan apps were violating ethics of money lending and also violating customers’ privacy while attempting to recover loans. Some of them went as far as threatening loan defaulters and sending defamatory messages to all their contacts.
It is also alleged that some of the loan apps were using the lending business as a cover for money laundering activities on behalf of foreign companies.
In an effort to check some of the unwholesome practices, crack down on predatory lending apps in the country and sanitize the micro-lending space, the FCCPC enforced the mandatory registration of all Digital Money Lenders (DMLs) in Nigeria.
“Too many illegalities and ethical practices were ongoing in the online money lending industry. Blackmail, public harassment became measures adopted by these loan sharks to recover loans. It was becoming embarrassing and chaotic and only right at the time for the government to get involved,” Abiola Odutola, a business analyst told WEEKDAYS SmartNews.
The registration, in the short term, will distinguish between legitimate loan apps and illegitimate ones, some of which have taken up the status of loan sharks.
What’s the fate of unlicensed loan apps?
Worried by the current situation, some of the unlicensed loan apps are regretting that they may never be able to recover their loans from defaulters. They are even more concerned that Google may soon take them off its Play Store, following the directive of the Nigerian government.
Last year, the FCCPC had called on Google and Apple Inc. to enforce the withdrawal of certain money lending applications from their stores. Speaking with WEEKDAYS Smart News, Uche Oweh, a senior staff of CreditU, a Lagos-based lending platform, expressed his dissatisfaction with the decision.
He said:
Just because we could not meet up with the deadline for registration doesn’t make the operations of some of us illegal. At CreditU, our records are clean and we have a right to be on Playtores. Being taken off these PlayStores may put us out of business.
Also speaking on the matter, Temidire Ogunbanwo, the Operations Manager of Cashfit, one of the loan apps that could not meet the approval process before the deadline, allayed some of his concerns.
He said:
We have many customers that are yet to complete the repayment of their loans. Some of them have dragged their loan repayment for over a year. Not getting approval to legitimately operate and the threat of being taken off app store puts us at helpless position.
Loan defaulters may take this to mean that we have no legality to demand repayment of loans and may decide to never repay their debt. If this happens, we stand to lose all the money we have hanging outside. This may even signal a possible end of the business which we have invested a lot.
Last year, the FCCPC had called on online money lenders across the country to register for legitimacy. The registration process involved the applicants providing identification and operational information to the FCCPC.
The FCCPC hoped that with the process, prospective applicants would be able to prove their legitimacy, compliance with applicable regulatory requirements, lawful source of funds and conformity with anti-money laundering.
However, some of the applicants could not meet up with the deadline which the FCCPC had shifted a number of times. Lateef Adebanjo, founder of Inglewood Limited, operators of MoneyRain told Legit.ng that the process has not been as seamless as expected.
He said:
I understand the need to create some form of sanity in the system by separating real loan apps from loan sharks. But the FCCPC has not made the registration process seamless. Some of the requirements are not easy to reach, hence, some of us could not meet the March 27 deadline.
An official of the FCCPC who only agreed to speak in anonymity said that even though the commission had shifted the deadline for registration no less than three times, some of the operators could not provide all relevant documentation to complete their registration process.
In a previous Legit.ng report, Ngozi Dozie, the co-founder of Carbon, one of the licensed digital lenders in Nigeria, lamented how the denial of loan apps access to customers’ contacts and photos will negatively affect business.
According to Dozie, even though the policy was well intended, the policy puts fintech startups at a disadvantage to the benefit of the ‘Big Banks’.
He said:
There is a grave danger that what started as a positive action will stifle innovation and hurt the smaller companies that are doing God’s work in financial inclusion. What’s worse is that there is already an uneven playing field between the fintech Davids and the Big Bank Goliaths.
Nigeria is not the only country dealing with illegal online lending platforms, otherwise known as loan sharks. According to TimesofIndia, India has the highest number of such apps and has already began a crackdown on their illegal activities.
While, we may not rule out the fact that many Nigerians have also formed the habit of taking loans from these platforms without an intention to pay back, it is also important for the government to ensure regulations that would protect genuine borrowers from predatory lending platforms.
The legitimacy given to some loan apps and lending platforms by the government is set to go a long way in the regulation of the lending ecosystem by ensuring accountability and transparency on the part of the loan apps. In addition, the risks involved in the patronage of loan apps will be reduced as government will also be able to monitor their activities and apply sanctions when and where necessary.
