One of the biggest challenges digital lending companies face in Nigeria would be recovering the loans from defaulting customers. Overtime, this habit has escalated and has turned out to be something close to a culture with a multiplicity of outrageous excuses to back them up. This difficulty in loan recovery has directly translated to difficulties in accessing credit especially from commercial banks without collateral or guarantors to sign loads of paperwork. This attitude to repayment of loans also limited access to personal loans by traditional financial institutions. This begs the question: what are the reasons for default in payment of loans by average Nigerians?
What can be done to improve loan recovery without resorting to extreme measures like threats and harassment by these loan agencies?
The ever increasing cost of living in Nigeria is one of the reasons that make repayment of loans difficult for individuals and small scale businesses. Even while demanding accountability from borrowers, it is important to take the economic circumstances into consideration. The purchasing power of the Naira dips by the day and as at May 30th, 2022, one USD is being exchanged on the black market for N610. This increase in the exchange rate contributes indirectly to inflation due to the rise in the prices of consumer goods through import input prices. It is no surprise that Nigerians in these situations will find it difficult to pay back these loans when faced with the challenge of surviving or paying back their debts.
The Absence of Consequences: Many Nigerians have realized that, apart from the constant bugging from some of the more persistent agencies, there are no real consequences for defaulting on their loans. There are only a few policies set in place to ensure that these digital lending companies can get back their money, especially with the fact that no physical contact has been established. They would find it easier and more convenient to ignore the messages and wait it out because there is little or no possibility of being arrested, tried in court or sentenced for this.
Zero Financial Skills: Due to the ease of the processes involved in digital lending, lots of people have the access to funds that they have no idea how to manage properly. Financial skills like management, investment and budgeting are lost on a greater percentage of Nigerians and this means that they have no idea what amount they can borrow comfortably, how to create repayment plans or manage the funds they have access to.
Sense of Entitlement: As surprising as it might sound, a number of unenlightened individuals tend to consider the loans they applied for as part of the “national cake” that they are entitled to. While there might be a capacity to return these loans, the willingness of the average Nigerian to pay back a loan they got with only a few clicks is low and this is encouraged by the ignorance of possible repercussions this action has.
There are a number of methods Fintech companies can employ for effective debt recovery without resorting to extreme measures like threats and breach of data. Starting from incorporating advanced technology to to curtail approval of loans to individuals with bad repayment history to pushing for policies that protects the interests of the lenders too.