Nigerians are turning to loan apps as a means to meet the challenge of rising food inflation. A study by SBM Intelligence found that in the wake of record inflation, 27 per cent of Nigerians across different income categories now rely on loan apps to meet their living expenses.
Amina Abubakar, a mother of three children living in Lagos, shared her experience: We had to rely on these loan apps to put food on the table. It’s not ideal, but it’s the only option we have at this point. ”
“At the beginning of last year, you could conveniently buy bread and delicatessen rice for just over 1,000 Naira, but now delicatessen rice alone costs 1,000 Naira.Now beans are cheaper, so I eat more. , we cook on a seven-wheel stove to save gas,” she said.
The surge in demand for these loan apps shows that unstoppable inflationary pressures are severely impacting the daily lives of Nigerians, especially those already struggling with limited financial resources.
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Experts who spoke to Business Day said that while demand for credit is rising, lenders are increasingly hesitant to lend due to the economic climate. Adedeji Olowe, CEO of Lendsqr, a startup that helps credit companies recover loans and avoid defaults, said there has been minimal lending activity on the fintech side. “Lenders are aware that almost all of their loan requests go to consumption. Therefore, they are moving away from lending to users because of the high risk of large-scale defaults.”
According to recent data from the Office for National Statistics, food inflation rose to an 18-year high of 30.64% in September, up from 29.34% in August, leaving many households across the country struggling with exorbitant food prices. He is groaning under the strain.
There has been a proliferation of online banks offering lines of credit primarily aimed at low-income people. There are also about 161 loan apps that have received full approval to operate from the Central Bank of Nigeria (CBN).
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This is not the first time this year that demand for loans has surged. According to the CBN report, consumer credit in the first quarter of 2023 increased by 1.3% to NGN 2.32 trillion from NGN 2.32 trillion in the previous quarter. A major factor in the increase in demand was the CBN’s move to phase out old naira banknotes and replace them with newly minted currency. This policy not only failed, but also created a nationwide cash shortage, leading many people to look for ways to borrow money to survive.
Although many online lending platforms benefited from the demand, many consumers became victims of usury. However, reported instances of unethical practices by these loan apps have not deterred or quelled the desire of Nigerians for credit facilities from these digital lenders. The federal government delisted 37 loan sharks in September.
But demand continues to grow, said Salami Oguninka, who runs a finance company in Ibadan, Oyo State.
“The truth is, for the past two months, the demand for loans has always increased because loan officers have been constantly telling us about the demand for loans. , warned against going with the flow,” he said.
He explained that fluctuations in the naira contribute significantly to loan demand. According to him, whenever the dollar rate rises significantly, demand appears to increase as there is no denying that this has a direct impact on prices. On Tuesday, the naira fell to an all-time low of 1,235 naira to the dollar due to strong demand in the parallel market, also known as the black market.
Mr. Oguninka said consumers were desperate for loans due to the continued devaluation of the currency, and many had little plan for repayment. His company isn’t turning away all borrowers, but it is now including new requirements before issuing loans to recipients. For example, a borrower must complete a background check and then post collateral. Collateral may be in the form of a signed document guaranteeing the outcome in case of default.
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“We recently went through some reviews, for example reducing the N200,000 loan request to N100,000,” Oguninka said. The company said it recently rejected a NOK 1 million loan request due to risks. However, it approved the request for 300,000 naira on Monday without ensuring that the borrower complied with its strict new rules.
Despite the measures taken by the company, Oguninka said that “default rates have also increased slightly.”