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The risk-based growth of Nigeria’s financial technology (fintech) companies may be facing its first major test as they struggle to keep the loan default rates at a tolerable level amid growing economic uncertainty.
Reports revealed that the default rate was growing at the same breakneck speed the sector’s lending had witnessed in recent years, compelling companies to reconsider their business models.
According to findings, the operators have become more cautious in their lending campaign just as they have stepped up their loan recovery campaign. Notwithstanding the new operational strategies, sources said the default rate was growing faster than the companies initially expected.
“They are becoming increasingly risk-averse but I think this is coming too late,” a startup operator who said he “does not listen to loan applicants with savings accounts” with his company told The Guardian Sunday evening.
The source also said he does not grant loan amounts above the applicant’s savings, which serves as collateral. “In that case, I lose nothing if there is a default. This is my model, I do not know about others,” the source explained.
For many operators, the conditions and processes of loan applications are as flexible as picking an item off a supermarket shelf. Most applicants go through the process in the comfort of their homes and offices and only visit the lenders’ offices to file a few documents such as passports, utility bills, account statements, and identity cards. The majority of the lenders access applicants’ account standards via apps, though with the customers’ authorisation.
Borrowers are credited in most cases without address (residential or official) confirmed. Whereas some of the companies ask borrowers to drop the phone lines of their colleagues who could be reached to confirm their employment status, others do not bother to subject the documents filed and claims made by applicants to any form of scrutiny.
For existing customers, the process could be as simple as filling only the loan application forms. Customers with running facilities are often cajoled to top-up at no documentation.
While money deposit banks (MDBs) subject loan applications to rigorous and irritating scrutiny, competition among fintech operators borders on convenience, ease, flexibility, and speed.
BUT what Nigerians, who patronise smart lenders, gain in terms of convenience and speed, they lose in cutthroat interest rates as high as 70 percent in some cases.
The lenders, which have forced a few hitherto conservative banks into smart thinking on loan product development, have built a huge clientele in the few years they have operated, leveraging the conservatism of conventional banks.
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.
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