A trending means of getting loans as quickly as within 24 hours or less may be helping to create liquidity for employees and owners of Small and Medium Scale Enterprises (SMEs).

However, this trend may be luring them to debt traps with the tendency for some to take loans that will inconvenience them during the monthly repayment period.

Checks done by this paper while interviewing a cross section of patrons of quick loans in Abuja, Lagos and other parts of the country, revealed that the trend became popular since 2018 and gained higher fame in 2020 with the economic crisis created by the COVID-19 pandemic.

Quick loan firms everywhere

There are a handful of them who offer enticing loans with low interest rates with little to no paperwork. While some offer from N20,000 to N5m, there are those whose thresholds reach tens of millions.

Their tenors are between one and 12 months (one year), with some up to a maximum of 24 months (two years).

One of the firms is QuickCheck. Its interest rate starts from as low as five per cent monthly on the first loan and loans range from N1,500 to N500,000 with terms from 91 days to one year.

For Carbon (formerly PayLater), a One Finance & Investment Ltd product, a loan attracts interest rate starting from five per cent monthly. Its loans range from N1,500 to N1m with repayment time of up to 64 weeks.

But for another loan app, 9ja Cash, a loanee can choose to repay in 91 or 180 days. Interest ranges from one to 34 per cent with an equivalent monthly interest of three to 29 per cent.

FairMoney operating online by MyCredit Investments Ltd said it was a licensed online lender that provide instant loans and bill payments. It said its loan disbursement was under five minutes.

It states on its website that: “Time is valuable to us, so we’re not wasting yours. It doesn’t take more than five minutes to get a loan on FairMoney. We don’t need any paperwork or collateral. Our Interest is not fixed. You can pay the lowest interest in the country with early and on-time repayment.”

Credit Direct Limited (CDL) based in Lagos with branches across the country pioneered the unsecured micro-lending space in Nigeria and is positioned to be the dominant market leader in the country and beyond.

CDL said its services were trusted by over 300,000 active customers, the largest endorsement in the Nigerian public and private sector; and that this had inspired them to remain the leader in Nigeria’s micro-lending space.

Among the board of directors as stated on its website are Chairman, Ladi Balogun; the MD/CEO, Akinwande Ademosu; and a Non-Executive Director, Mrs Yemisi Edun. Yemisi was an Executive Director, Finance with FCMB, before she became the acting MD of FCMB in January, 2021, after the MD, Adam Nuhu, went on leave over an investigation on his alleged affair and children with a married woman.

Baobab Loans gives a minimum amount of N20,000 and a maximum of N40m depending on the assessed borrower’s repayment capacity. The firm said it could process and disburse a loan in 72 hours repayable in one to 24 months with minimum administrative procedures.

Baobab which also operates as a Micro Finance Bank (MFB) has offices in Kaduna, Abuja and Lagos, among others. It is headed by the CEO of Baobab Group, Philip Sigwart, and the MD/CEO of Baobab Nigeria is Kazeem Olanrewaju.

RenMoney, another online quick loan platform, boasts of offering convenient personal and micro-business loans. The firm which is in Lagos also offers savings and fixed deposit deals.

“Whether you’re employed or run your own business, our loans of up to N6m can help you meet your needs conveniently,” it says on its platform.

RenMoney said it had provided 240,000 units of loans to Nigerians with over 10,000 SMEs empowered.

On regulation, it said: “We lend responsibly and are regulated by the Central Bank of Nigeria (CBN). Deposits and savings are insured by the Nigeria Deposit Insurance Corporation (NDIC).”

According to Segun Onifade, a resident of Abuja, he has patronised FairMoney and RenMoney. Explaining the process, he said: “You will go to their website or their app and fill in your details, including Bank Verification Number (BVN) and at least three guarantors’ phone numbers.

“When they evaluate your monthly income, they then approve what they think you can repay monthly through the loan tenor.”

On the interest rate, he said some platforms charged about six to eight per cent, including their processing fee.

He further said, “They will also ask you to choose a monthly repayment date.”

While the impact of these loans may be good as claimed by some customers, there are constraints from others who believe the easy process entices more people to take loans that they do not actually need.

GTB, Stanbic, others offer quick loans

Aside from the independent online money lenders, the commercial banks have also found a way to cash in on this for those who have salary accounts with them.

For instance, Guaranty Trust Bank (GTB), Sterling Bank and Stanbic IBTC and other banks offer instant loans to customers with salary accounts with them.

According to Hajiya Huraira Abdullahi, a Kaduna resident who has benefited from the quick credit facility of GTB, she accessed N100,000 and N200,000 in 2019 and 2020.

She said, “I used to use my GTB account as my salary account, but even when I changed the account, I was still able to access the loan because I deposit money from my business there.

“I think the bank accesses your account based on the volume of money that comes in and comes up with a limit at which you can borrow. When I borrowed N200,000, I paid back in six months with an interest of less than seven per cent.”

She said the advantage of the facility was the quick access to money and the fact that there was no guarantor need, noting that, “I received the loan in less than an hour after I requested for it.”

However, she said the bank had to review its policy because many people took the loans and did not repay.

Mustapha Aliyu who accessed a loan from PayDay on the Access Bank platform said within minutes of his request, his account was credited with N80,000.

Asked how he was able to make up the repayment in 30 days even though the loan facility was more than 30 per cent of his salary, he said, “Though the repayment period was 30 days, I was able to pay back the money with N2,000 as interest rate.”

According to David Adam who resides in Mararaba, Nasarawa State, one needs to have proper planning before taking such loan.

He said he accessed a loan from Credit Direct and felt it was easy to get the loan without other platforms and the banks verifying if you have other loans running.

He explained that, “If you don’t guard yourself, you may end up not having anything to take home every month because of the loan deduction. So it is good to plan. This is because the banks or any platform will not check your history to determine how much is your net earning every month. Once they start doing this, the loan process will be slow and will no longer be attractive.”

A 9ja Cash loanee, Cosmas Tizhe, who shared his experience said: “Besides their highly exorbitant fee – 33 per cent – they have a very stupid customer service with extremely rude relations skills. I defaulted (to pay back my loan) by a week and they sent SMS to all my contacts saying I was a ‘criminal on the run.’”

Another loan app subscriber, Dare Fasipe, said of GoCash: “My experience was unpalatable. Let me just warn potential users: installing all these loan apps makes all your information on your phone vulnerable, especially your credit card details, anybody could use it for dubious means. Then, they gain access to all contacts on your phone. If you fail to pay, they’ll be sending messages to all your contacts.”

Lenders flouting limit rules – CBN

This paper gathered that the Central Bank of Nigeria (CBN) insisted over 10 years ago that no lender should give a loan to a customer of which the monthly repayment is over 33 per cent of the monthly earning of the debtor (customer).

According to most of the patrons of the quick loan platforms, they are the ones to tell the lenders their net income. The lenders do not have the luxury of time to verify independently what the net disposable incomes of the debtors are before crediting their accounts.

According to Section 14.1b of the CBN prudential guideline for deposit money banks in Nigeria, which became effective May, 2010: “Banks shall ensure that the total monthly amortisation payments of consumer loans, inclusive of housing loan, should not exceed 33.1/3 per cent of the net disposable income of the prospective borrower.”

The interpretation of the above provision implies that if a consumer takes home N100,000 as net income in a month, his or her loan deduction cannot exceed N33,300 per month.

A senior management official at the Consumer Protection Department of CBN who spoke with our reporter said: “It is obligatory for individuals and companies to study and understand the terms and conditions of a loan offer to assist them in choosing loan offers that are best suited to their financial capabilities and needs.

“It is important to note that all loans taken will be repaid according to the terms and agreements.

“We have regularly advised that individuals should not take loans from unlicensed individuals and institutions (loan sharks) to avoid running into financial difficulties.”

Experts advise Nigerians

While it is seen as positive for the ease in accessing credit facilities to boost businesses and solve financial needs, economic experts have advised loan seekers to do this with caution to avoid the hurtful traps.

According to Mr David Akwu, a financial analyst at the University of Nigeria Nsukka (UNN), the quick loans have come to stay with fintechs’ entrance into the financial services space.

Mr Akwu said, “Small loans are just a click away now, or with just a mobile app you can take small credits without stress. And if you are faithful in paying, you get more loans even in higher amounts.”

Akwu said workers taking the loans should reduce their appetite for those loans and take them only when absolutely necessary in order not to be choked by the debts.

“With the Global Standing Instruction (GSI) mandate and the BVN, there is no hiding place for loan defaulters. With the GSI any account you have funds in will be debited to repay your loan. So low income earners should only take loans when absolutely necessary.”

Another financial expert, Mr Peter Effiong, said young Nigerians were unknowingly walking into debt traps.

Mr Effiong, a former bank staff, said though the Nigerian government genuinely wanted to put cash in the hands of Nigerians to reflate the economy by encouraging banks and financial institutions to lend out more money, some young people were taking such loans without clear cut plans on repayment.

The expert said the proliferation of fintechs in the country, competing for customers, had made the process of accessing “easy money” simpler and quicker.

The expert said the problem was that young people who were not even employed or had any source of money were taking these loans.

Mr Effiong, therefore, asked, “How can you repay loans when you don’t have a source of income? My advice is you don’t take out a loan above 50 per cent of your income. That’s the only way you can repay unless you intend to steal to repay.”

He cautioned people, especially those who do not have sources of income, to take loans intended for business and not for consumption.

He said, “You can take a loan to do business. This is acceptable if you have a good knowledge of the business. But you can’t take a loan to buy a car, build a house or even marry without a plan on how to repay. If you do that, you are in trouble.”

Quick loans have high default rate – Baobab

The Chief Executive Officer (CEO) of Baobab Micro Finance Bank, Kazeem Olanrewaju, who commented on hazards of quick loan schemes, confirmed the high rate of default than the normal loans.

Olanrewaju said, “In most cases you have some parameters that are set in the system to determine customers that are qualified for these loans, so if a customer is able to understand these parameters and they decide to work through them, they could get the loans when in actual fact they are not qualified.

“So, what you can see is a situation where the people you intended to give this loan may not get it, and those you intend not to get the loan may be the ones that will access it.”

He also raised issues on suspected fraudulent activities by some who take the loans, taking advantage of the digital platforms.

He said, “If the quick loan is not on any of the Credit Bureau Platform, it means it is not reported, and so if it is not reported the general public or the industries are not aware that the loan has been granted. Such a customer can access a loan from multiple sources, which, when you compare to their source of income or their salary, the loan may be beyond the threshold expected and so it means that they are over-indebted.” (Daily Trust)

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