Pascal Oparada
One of the success stories of the fintech revolution in Nigeria is the explosion of digital lending apps or personal loan apps.
Nigerians have never been this spoilt for choice when it comes to personal loans, which provide disposable income to the cash-strapped.
They are strewn all over the app stores, prodding users to take one form of loan or another to fulfil immediate financial needs.
“It is a two-edged sword,” says Owolabi Jaiyeola, a financial expert.
“While these apps are there asking users to take loans, the danger is that they may not be licensed and may go above the Central Bank of Nigeria’s approved interest rate,” Jaiyeola said.
At the last count, over 20 loan apps are in the Google Play Store.
These apps, in the absence of well-structured eco-system, rely on phone records of customers to ascertain their creditworthiness.
They do this by scouring smartphone data including call logs, contact lists, GPS data, and texts, users can look beyond traditional banks to access credit.
But there’s just one problem. There’s growing evidence that the ease of access to quick, digital loans is leading to a growth in personal debt. And as lending apps jostle for market share and revenue from interest payments, there are fears they will inadvertently nudge users towards indebtedness and poor spending choices.
But, Ifeanyi Ekemeze, one of the operators says digital lending apps are plugging huge gaps left open by traditional banks.
“We are meeting real needs. How many times have you walked into any bank in Nigeria and ask for a loan of say N50,000 and get it with the snap of a finger without collateral?” Ekemeze asked.
“If as a parent, you are unable to promptly raise the school fees of your wards, lending apps quickly come to your aid rather than wait for banks with a complex bureaucracy and in the end, may not even give you the loan,” he said.
Selling our data?
Despite repeated assurances by the apps that user data are protected, Jaiyeola believes some of the apps do not protect users’ data as they may be open to hacking by cybercriminals.
Before you get a loan, these apps ask you such critical questions as filling your debit card details, your bank verification number (BVN) and other details, which give them access to your bank records.
Experts say this is commoditizing user data and may result in being used as a medium of trade by some unscrupulous lenders, as was done by Facebook during the Cambridge Analytica saga of 2015 and 2016 in which over 87 million data of Facebook users were harvested for the purpose of advert targeting and vote-buying during the U.S. and Nigeria elections.
The commodification of user data is raising concerns around data privacy and ownership. The scrutiny is starting to result in partial clampdown measures. Kenya has passed new EU-inspired data protection laws and Nigeria merely ratified hers while Google announced recently that it would bar lending apps that promote personal loans, which require repayment in two months or less.
The Central Bank of Nigeria’s spokesperson, Isaac Okoroafor did not return calls to his cellphone or replied to messages sent to him seeking to know if the CBN is aware of these lending apps and what measures have been put in place to check abuse.
But a CBN directive to fintech operators is that they must be duly licensed.
In 2018, the CBN introduced a bank category it calls payment service bank (PSB).
A PSB is a bank that is authorized to, among other things, accept a deposit, provide payment and remittance services and also issue digital wallets. According to the guidelines, a PSB should operate in rural areas.
Also, the Nigerian Communications Commission regulates fintech businesses where it involves the use of mobile phones.
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In the NCC guidelines, it calls Value Added Services (VAS), a provider is any person or organization engaged in the provision of value-added services such as mobile/fixed services, including premium rated services. The use of airtime for the repayment of loans to a mobile lender could constitute a premium rated services.
But Jaiyeola believes that the explosion of these lending apps would leave users worse off than intended.
“We are in a country where companies do not promptly and regularly pay their staff. Imagine obtaining a loan with the hope that your employer would pay you but either doesn’t or delays your salary, you are likely going to run into problems with these people as they may report you to the Credit Bureau,” he said.
