Credit has increasingly been recognised as a major driver of successful economies. Access to credit stimulates business growth while increasing the purchasing ability of citizens, both of which ultimately lead to economic expansion.

According to data from the US Federal Reserve, the US consumer debt was at US$15.6 trillion in 2021. Successful economies like the US, Europe, and the UK have been built successfully around credit, which makes it possible for SMEs and individuals to access loans to support everyday activities.

The Nigerian economy is however different. While credit to large corporations and high net-worth individuals continues to be on the rise, SMEs and individuals struggle to obtain credit, usually due to a lack of (or poor) credit ratings or transaction footprints to correctly profile them for credit. According to the Central Bank of Nigeria (CBN), Nigeria has an N617.3billion (US$1.472 billion) MSME financing credit gap.

Truth be told, consumer lending is fraught with multiple frictions in Nigeria. Rising cases of lenders extending credit to borrowers only for the latter to repeatedly default or completely refuse to pay because of the difficulty in implementing sanctions have pushed many banks and non-bank lenders to adopt more rigorous and stringent credit checks to reduce credit default.

Some lenders in a bid to lower loan default have resorted to underhand tactics of “socialising" lenders’ personal debt details across their personal and business networks as a form of pressure to “shame them to pay”.

Some lenders have, however, adopted the technology-led approach of significantly reducing consumer and SME loan defaults by, adopting the industry-leading Remita Direct Debit solution.

Remita Direct Debit to the rescue

Remita Direct Debit is an end-to-end solution that empowers bank and non-bank lenders to automatically receive loan repayment from any commercial or microfinance bank account of borrowers on the due date. This is achieved by ensuring that as part of the loan application process, borrowers can easily set up electronic repayment mandates against any preferred business or salary bank accounts.

In the eyes of the law, such loan-repayment mandates carry the same weight as the issuance of cheques. Default on payment on the due date attracts the same sanction as that of issuing a dud cheque and may include being barred from access to future loans from the same or other financial institutions or in extreme cases; the inability to operate a bank account anywhere in Nigeria.

When a borrower sets a loan repayment mandate on his or her bank account through Remita Direct Debit, lenders are assured that when the time for repayment is due, they do not have to resort to “dragging” borrowers. This is because the borrower’s account will be automatically debited and the fund owed sent to the lender’s position immediately.

In the case of occasional non-availability of funds on a loan repayment due date, Remita Direct Debit maintains an Always-Active Algorithm (AAA) which ensures that loan repayment is automatically effected whenever the defaulting account is funded.

Remita Direct Debit makes it easy for lenders to secure loan repayments as it reduces the need for maintaining a “collection squad” while greatly reducing the time required to chase repayments.

With Remita Direct Debit, customers of any bank in Nigeria can easily set up direct debit mandates on their individual or corporate bank accounts, with the assurance that a lender’s account in any bank will be duly credited on the specified loan repayment date whether for single or multiple repayment regimes.

Lenders can have borrowers set up direct debit mandates on their websites, achieved through the Remita Direct Debit API integration, or have customers visit the Remita website to set up their direct debit mandates.

Value proposition for lenders

Lenders who subscribe to Remita Direct Debit enjoy better loan repayments as customers' bank accounts are directly debited at pre-agreed intervals to settle loan obligations.

Remita Direct Debit powers the loan repayment activities of a plethora of lenders in Nigeria including banks, co-operative societies, finance houses, and more who now experience stress-free and faster loan repayments from individual and SME customers.

According to data from the CBN economic report, more than N2trillion was disbursed as consumer loans in 2021 alone. In 2021, Remita Direct Debit in its short stint in the market has helped many lenders receive repayments of billions of Naira in respect of millions of credit transactions.

Changing the face of loan repayment in Nigeria

Remita Direct Debit came into the market with many unique features and capabilities at a time when many lenders were seeking alternative approaches to dealing with the increasingly crippling issue of loan default. It has since become the preferred option for the diverse range of licensed credit providers, with huge potential to significantly transform corporate, SME, and individual lending in Nigeria.

Remita Direct Debit is one of the major offerings of Remita Payments Services Limited whose mission is to empower everyone, everywhere to do more by simplifying payments.

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