Who’s wining the lending business in Nigeria?
At no point in the last decade have there been a need for millions of Nigerians to access loan facilities like we have in recent times, the on-going development in Nigeria lending space is becoming a dog eat dog business. Many companies are beginning to show interest in the lending business by the day and we often see emerging small and large credit providers advertise on social media platforms offering low risk, short-term to long term loans.
Individuals can now obtain loan facilities from start-ups and micro-finance banks, without a collateral or any form of guarantor which are the requirements required to obtain a commercial bank loan. All that is required to obtain a loan today is a 6 months credit history and you get a loan in 24 hours.
Considering the frustration customers experience while trying to obtain a loan from commercial banks, lending platforms main leverage is the ease of access to credit facilities they offer their customers and provide loans to working class and small businesses.
There is a lot of risk associated with the lending business in Nigeria but the lending companies somewhat have been able to mitigate or reduced potential risks by offering low risk loan. For instance, companies like paylater, kwik cash, fair money, and many others companies offers low risk loan as low as ₦500 (five hundred Naira), customers will be eligible for higher loan rate upon the successful completion of the previous loan. The average duration for such loan is usually between 15 to 30 days similar to payday loans.
On the other hand, big lending companies like Renmoney, Page Finance, Credit direct, and many others are blazing the trail by providing short and long term loan facilities as high as ₦6,000,000 for individuals. Lending giants like Renmoney now have kiosk/mobile office across Lagos state which looks similar to what we have in the US and UK (Pay-day lending shops).
What will the banks do?
Different commercial banks are beginning to take a bold step by offering collateral free loans to the general public. Top tier banks like Guaranty Trust Bank is competing directly with the credit giants by offering low interest rates. Similarly, other banks have also decided to provide loan facilities via different channels like USSD, POS, ATM, and web which makes loan accessible to customers while banks like Union bank is offering credit facility to individuals and SMEs to grow their businesses.
It is apparent that GTB has what it takes to compete with other dominating lending companies considering their low interest rate and excellent marketing strategy. However, one major drawback with their system is that loan facilities is open only to customers with a salary account i.e only a few eligible customers will be able to obtain a loan. This gives other lending companies the opportunity to provide loan facilities to these excluded customers. All you need to obtain a loan from major lending companies today is a recent bank statement, utility bill, and some basic personal information, then you get a loan in less than 24 hrs.
Winning through partnership
Banks and lending companies should seek long lasting partnership with 3rd party lending service providers like Interswitch lending service which provides credit analysis, scoring & management technology for banks and non-bank credit providers. This will enable banks to easily profile customers and determine the eligibility of 3rd party customers before approving a loan facility. Furthermore, banks should be able to provide loan facilities to other bank customers and this I believe can only be achieved through partnerships.
Who determines the credit score?
The lack of an accurate credit score of Nigerians is one of the major problems associated with the lending business in Nigeria. In fact, it is difficult to determine how to mitigate the risks of lending funds to customers that have poor or no credit score. Lending companies/startups have taken the responsibility of creating credit score and credit history of their customers and it’s now up to the Nigerian credit bureau to collect, secure and house all credit scores gathered from these lending companies so that all platforms can use a central credit score platform to profile customers before offering them a loan.
Still wondering about recovery?
The Central bank and the lending companies/banks have recently agreed to seize defaulter’s savings domiciled with other banks to service outstanding loans. Once a customer signs and agree to the conditions of the loan, Bank verification number is going to be a vital loan recovery tool which will make the process of recovering bad debt easy for financial institutions and lending companies.
The future of lending.
The wide spread and adoption of lending providers in Nigeria means innovative ways of lending will be introduced to existing and new systems lending platforms will emerge. Lending companies and commercial institutions will begin to offer lending services in areas such as; value financing, utility credits, student loan, peer to peer lending, car loans, housing loan, and so on. This will be a game changer and accessing a loan facility through new lending channels will be open to all. Channels such as USSD, ATM, mobile money merchants will create a pathway for customers trying to access funds.