Digital lending boom drives personal loans to N7.5trn on 80% loan app growth 

Joy Agwunobi

In a testament to the rising demand for credit among Nigerians, the number of approved digital lending platforms in Nigeria has risen nearly 80 percent since April 2023, propelling personal loans to a 329 percent year-on-year increase, reaching N7.52 trillion as of March 2024, according to data released by the Central Bank of Nigeria (CBN).

The Federal Competition and Consumer Protection Commission (FCCPC), in a separate report, indicated a surge in the number of registered digital lenders in Nigeria, with a 79.77 percent increase over a period of 18 months. The data reveals that the number of approved lending platforms jumped from 173 in April 2023 to 311 by September 2024.

The growth in lending rates initiated by digital lending apps is closely monitored and regulated under the FCCPC’s Limited Interim Regulatory/Registration Framework and Guidelines for Digital Lending 2022, which mandates all digital lenders to undergo a thorough approval process before they can operate in the Nigerian market.

As the digital lending sector continues to evolve in Nigeria, the FCCPC maintains a strict regulatory process, ensuring that all digital lenders meet the necessary requirements for approval.

The FCCPC offers two types of approval: full approval and conditional approval.

Between April 2023 and September 2024, the number of fully approved lenders rose from 119 to 269, while conditional approvals fell from 54 to 42. Notably, out of the 311 registered lenders, 14 were granted direct approval by the Central Bank of Nigeria.

The CBN has attributed the recent spike in consumer credit to the proliferation of loan apps amidst a high inflation rate, which stood at 32.15 percent as of August 2024.

The apex bank commented that the rise in consumer loans was initially fueled by increased banking system liquidity and greater access to formal financial services through fintech channels in early 2023. However, by 2024, the continued growth in consumer credit was primarily driven by rising inflation expectations, with consumers seeking credit to hedge against the eroding purchasing power of the naira.

The high cost of living in Nigeria is pushing a growing number of citizens into debt, as evidenced by data from Piggyvest and SBM Intelligence. According to Piggyvest, 40 percent of Nigerians are currently in debt, with 26% owing money to loan apps. These numbers are supported by findings from SBM Intelligence, which reveal that 27 percent of Nigerians across various income levels are turning to loan apps to manage daily expenses amidst inflationary pressures.

The ease of access and quick disbursement of loans through digital channels has made loan apps a popular choice for many Nigerians seeking credit.

In 2023, Olayemi Cardoso, the CBN governor, recognised the potential of these platforms to fuel growth in Nigeria’s service sector, as the convenience of mobile money and digital lending has led to an increasing number of people opting for loans.

However, as the demand for loans continues to rise in the country, regulatory bodies have stepped up their efforts to ensure that lending platforms adhere to strict guidelines, contributing to the increase in registered lending platforms in 2024.

The increased lending activity in Nigeria has not come without a cost, as the recent hike in the CBN benchmark interest rate has pushed borrowing rates to unprecedented levels.

In September 2024, the CBN raised its Monetary Policy Rate (MPR) by 50 basis points, bringing the benchmark interest rate to 27.25 percent. This move has significantly increased the cost of borrowing, with interest rates ranging from three percent to 12 percent per month, depending on the digital lender. The higher borrowing rates, combined with Nigeria’s inflationary pressures, have made repaying these loans a daunting task for many citizens.

With the rise in borrowing rates and the potential for over-indebtedness, many digital lending platforms in Nigeria are turning to innovative technologies to mitigate risk.

To ensure that borrowers have the ability to repay their loans, these apps are now employing bank statement analysis to assess borrowers’ income sources. This strategy allows lenders to make more informed decisions and offers greater protection against default.

Gbemi Adelekan, president of the Money Lenders Association, commented on this shift, stating, “We are ready to support the economy, but borrowers must be prepared to repay their loans.”

The balancing act between supporting economic growth and safeguarding against the risk of defaults is becoming increasingly critical in Nigeria’s digital lending industry.

As more citizens turn to these apps for credit, both lenders and regulators are recognizing the need to strike a delicate balance between promoting the accessibility of credit and enforcing responsible lending practices.